May 3, 2023
Fed Chairman Jerome Powell held his monthly meeting today, oblivious to the crisis in the banking industry, which has been precipitated by the Fed’s interest rate increases over the past year.
As widely anticipated, Fed increased Fed Fund Rates another 1/4 point to 5% – 51/4%, with maybe a pause in the coming months.
Meanwhile in the real world, Franklin Republic Bank (FRC) after being taken thru FDIC receivership was sold to JP Morgan for pennies for each dollar of Assets on FRC’s books. In addition, the Fed will take the majority of any losses that are realized in the future, as their loan portfolio unwinds. A deal where JPM keeps 100 % of the profits, and shares the majority of any losses with the Fed and FDIC. A great deal for JPM, and not so good a deal for the rest of the banking industry.
With this takeover, JPM’s CEO Jamie Dimon, says, ….”this phase of the (banking) crisis is over.”
Although I hesitate to disagree with that statement, I must note, that another brilliant investor, Charlie Munger, Warren Buffett’s older partner suggests we may be only at the beginning of the banking crisis, because of the implosion of commercial real estate values across major cities.
Tonight it looks like another West Coast Bank, Pacific West Bancorp, PACW ($6) may not survive the week, as it reports it is looking for a buyer.
Which Bank is next? Well some suggestion are being promoted on the internet, which you can check out for yourself.
This reminds me of the Savings & Loan Crisis of the 1970’s under President Ronald Reagan and his “Supply Side Economics” team. Maybe, even something worse.
Why do I feel I am on the Titanic on its maiden voyage?
All in all, probably the best investment advice anyone can get these days, is the old Wall Street saying: “Sell in May, and Go Away.”