MONDAY KETCHUP: Uncle Jamie save First Republic, plus SVB's post-mortem, Dorsey's advice to Musk, AI nukes, and family wealth

Live from Puddletown, it’s yet another Manic Monday edition of Business Pants. Joined today by the Lord of the BS. In today’s squawkbox called May 1, 2023: Sexy Story Updates and Banks!

DAMION1

1. Fed report on SVB collapse faults bank’s managers — and central bank regulators

1. Mismanagement and supervisory failures, compounded by a dose of social media frenzy, combined to bring down Silicon Valley Bank, the Fed said in a report Friday.

2. Michael Barr, the Fed’s top bank supervisor, called for changes in the way regulators approach the nation’s complex and interwoven financial system. Barr said in the exhaustive probe of the March 10 collapse of SVB that myriad factors coalesced to bring down what had been the nation’s 17th-largest bank. Included:

1. Among them were bank executives who committed “textbook” failures in managing interest rate risk, Fed regulators who failed to understand the depth of SVB’s problems and then were too slow to react, and a social media frenzy that may have accelerated the institution’s demise.

2. Barr noted that SVB’s deposit run was exacerbated by fear spread on social media outlets that the bank was in trouble, combined with the ease of withdrawing deposits in the digital age. The phenomenon is something that regulators need to note for the future, he said.

3. ″[T]he combination of social media, a highly networked and concentrated depositor base, and technology may have fundamentally changed the speed of bank runs,” Barr said in the report. “Social media enabled depositors to instantly spread concerns about a bank run, and technology enabled immediate withdrawals of funding.”

2. JPMorgan is buying First Republic Bank after it was taken over by regulators

1. First Republic Bank was put into receivership by regulators early Monday.

1. JPMorgan is taking over the failed lender and its deposits of almost $104 billion.

2. First Republic's failure is the second-largest in US history.

3. Deposits will continue to be insured by the FDIC, and customers do not need to change their banking relationship to retain their deposit insurance coverage up to applicable limits.  

4. As part of the transaction, First Republic Bank's 84 offices in eight states will reopen as branches of JPMorgan on Monday.  

2. The FDIC estimated that the cost to its Deposit Insurance Fund will be about $13 billion. 

3. "Our government invited us and others to step up, and we did," said Jamie Dimon, the CEO of JPMorgan. “This acquisition modestly benefits our company overall, it is accretive to shareholders, it helps further advance our wealth strategy, and it is complementary to our existing franchise.”

1. The acquired First Republic businesses will be overseen by JPMorgan Chase’s Consumer and Community Banking (CCB) Co-CEOs, Marianne Lake and Jennifer Piepszak.

MATT

1. Jack Dorsey says Elon Musk should've walked away from Twitter deal

1. Former CEO of Twitter Jack Dorsey criticised tech billionaire Elon Musk's direction for the social media giant saying he should have walked away and paid a $1 billion break-up fee.

2. Dorsey said he was earlier optimistic about the platforms takeover by Musk but now he believes that the tech billionaire "is no longer the singular solution he trusts to run Twitter."

3. He expressed his remarks after the users of Bluesky — an alternative platform to Twitter — asked him about the leadership of CEO Twitter Musk.

4. When asked by a user if he thought Mr. Musk has been the best possible leader for Twitter, Mr. Dorsey replied “no.” 

1. “Nor do I think he acted right after realizing his timing was bad. Nor do I think the board should have forced the sale. It all went south,” wrote Mr. Dorsey, who has been a supporter of Bluesky.

5. Last year, Dorsey supported Musk's aim for Twitter, saying Musk's goal of making the social media platform "maximally trusted and broadly inclusive" is the "right one." Dorsey wrote: "In principle, I don't believe anyone should own or run Twitter. It wants to be a public good at a protocol level, not a company … Solving for the problem of it being a company, however, Elon is the singular solution I trust. I trust his mission to extend the light of consciousness."

2. Nuke-launching AI would be illegal under proposed US law

1. On Wednesday, US Senator Edward Markey (D-Mass.) and Representatives Ted Lieu (D-Calif.), Don Beyer (D-Va.), and Ken Buck (R-Colo.) announced bipartisan legislation that seeks to prevent an artificial intelligence system from making nuclear launch decisions. The Block Nuclear Launch by Autonomous Artificial Intelligence Act would prohibit the use of federal funds for launching any nuclear weapon by an automated system without "meaningful human control."

1. “As we live in an increasingly digital age, we need to ensure that humans hold the power alone to command, control, and launch nuclear weapons—not robots,” Markey said in a news release. “That is why I am proud to introduce the Block Nuclear Launch by Autonomous Artificial Intelligence Act. We need to keep humans in the loop on making life or death decisions to use deadly force, especially for our most dangerous weapons.”

3. The 25 richest American families, ranked

1. Private

1. 14 families

2. Publicly-traded companies only:

1. Rollins Family–$13B

1. Rollins Inc. (ROL): pest control

2. BS: 71% family control

2. Stryker family–$14B

1. Stryker Corporation (SYK): medical tech

2. BS:  family control: only one member: Ronda (23%)

3. Dorrance family–$15B

1. Campbell Soup Company (CPB): food

2. BS: 71% family control

4. Ziff–$15B

1. Ziff Davis (ZD): media

2. BS: family sold in 2010

5. DuPont–$16B

1. DuPont de Nemours, Inc (DD): Chemicals

2. BS: company over 200 years old; family control is gone

6. Busch–$18B

1. Anheuser-Busch InBev SA/NV (BUD): booze

2. BS: 79% family control

7. Brown–$20B

1. Brown–Forman Corporation (BF.A): booze

2. BS: 71% family control

8. Pritzker–$32B

1. Hyatt Hotels Corporation (H): travel

2. BS: 70% family control

9. Lauder–$40B

1. Estée Lauder (EL): cosmetics

2. BS: 78% family control

10. Walton–$247B

1. Walmart (WMT): retail

2. BS: 73% family control

3. BS notes

1. 10 companies

2. Family represents 54% of total influence

3. 27% Female (33%)

4. Average tenure: 18 (7)

5. Average age: 59 (60)

6. 7 of 10 with 70ish%

MATT1

The bank-run-meme continues:

CONTEXT:

As of March 2023, there were 168 large US publicly traded banks.  Nearly 2,800 people sat on the boards of those banks - they are, in essence, the US banking system.  Of those, a staggeringly low 102 are risk experts. Just under 4% of the stewards of the banking system have a background in anything resembling bank risk.

Those risk experts sit on the boards of… 66 of the 168 banks.  Put another way: less than half (39%) of the US banking system uses a risk expert in their oversight.

First Republic, who had roughly 70% of deposits uninsured, took exactly the same risk with exactly the same profile - no risk experts, with a twist - rather than stacking the committee with executives, they stacked it with people who arguably have no business overseeing risk at all.  They included a professor in organizational psychology, the head of a resale apparel company, and an affordable healthcare foundation CEO.

the risk committee members had a staggeringly low 12% of the board influence, compared to 42% of the board influence owned by executives and insiders.

WHO ELSE:

First Republic isn’t actually even the worst - there are banks in the US (40 of them) that either lack risk committees entirely or fold them into existing committees on top of other board duties. Only 8 of those have risk experts on the board at all - Silvergate, another failed bank, falls in this category. Overall, fully 54 of the largest 168 banks have executive influence greater both risk expert and risk committee influence and executives control more than a third of the board total decision making power.  In maybe the greatest irony, among those is First Citizens Bank who announced their purchase of SVB assets.  First Citizens has been tagged with no dedicated risk experts, 78% of the board influence is executives, and two of those executives sit on the risk committee.  The remaining members are two retired PwC partners and a mechanical contractor CEO.  

According to our data, no one is worse than First Foundation Bank for executive influence, however.  The bank has no risk committee, no risk experts, and 81% of of the influence is executives.  It is a publicly-traded private company - fake public - and worse, the largest shareholder (Fidelity and BlackRock) uniformly voted FOR every director.  They weren’t alone - 95% of investors voted FOR First Foundation Bank’s directors.  97% voted for First Citizens.  Even 92% voted for First Republic.  The average FOR vote for the 54 banks with outsized executive influence and limited risk influence: 93%.

JPM

Take JPMorgan, the now owner of First Republic bank - the 2 people that separate JPMorgan and First Republic are risk experts Tim Flynn and Linda Bammann (Bammann chairs the risk committee).  The risk committee at JPMorgan has 20% of the board influence, all independent non-executives, and risk experts make up 17% of the board influence while the executives - Dimon alone - have just 28% of the influence.  While Jamie Dimon may rule the board, at a minimum he has effective and powerful advisors.