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    G.M.’s Sales Jumped 19% in the Second Quarter

    General Motors, Toyota and other automakers sold more trucks and sport utility vehicles as supply chain problems eased and demand remained strong despite rising interest rates.Some of the country’s biggest automakers reported big sales increases for the second quarter on Wednesday, the strongest sign yet that the auto industry was bouncing back from parts shortages and overcoming the effects of higher interest rates.General Motors, the largest U.S. automaker, said it sold 691,978 vehicles from April to June, up 19 percent from a year earlier. It was the company’s highest quarterly total in more than two years.Automakers have struggled in the last two years with a shortage of computer chips that forced factory shutdowns and left dealers with few vehicles to sell. More recently, rising interest rates have made auto loans more expensive, causing some consumers to defer purchases or opt for used vehicles.“I’m not saying we are on the cusp of exciting growth here,” said Jonathan Smoke, chief economist at Cox Automotive, a research firm. “But we are now at a turning point where the auto market returns to more balance. It’s the beginning of returning to normal.”The easing of chip shortages has allowed automakers to restock dealer lots, making it easier for car buyers to find the models and features they want, Mr. Smoke said. At the end of June, dealers had about 1.8 million vehicles in stock, nearly 800,000 more than at the same point in 2022, according to Cox data.Sales have also been helped by strong job creation and rising wages, Mr. Smoke said.At the same time, however, higher interest rates and higher car prices have put new-car purchases out of reach of many consumers. In the first half of the year, the average price paid for a new vehicle was a near-record $48,564. The average interest rate paid on car loans in the first six months of 2023 was 7.09 percent, up from 4.86 percent a year earlier, according to Cox. The average monthly payment in the first half was $784, up from $691.“Demand will be limited by the level of prices and rates, which are not likely to come down enough to stimulate more demand than the market can bear,” Mr. Smoke said.Cox estimated that total sales of new cars and trucks rose 11.6 percent in the first half of the year, to 7.65 million. The firm now expects full-year sales to top 15 million, which would be a rise of 8 percent.Several automakers reported solid quarterly sales on Wednesday. Toyota said its U.S. sales rose 7 percent, to 568,962 cars and light trucks. Stellantis, the company that owns Jeep, Ram, Chrysler and other brands, reported a 6 percent rise, to 434,648 vehicles.Honda, which had been severely hampered by chip shortages, said its sales rose 45 percent to 347,025 cars and trucks. Hyundai and Kia, the South Korean automakers, each sold more than 210,000 vehicles, posting gains of 14 percent and 15 percent.Electric vehicles remain the fastest-growing segment of the auto industry. Rivian, a maker of electric pickup trucks and sport utility vehicles, said on Monday that it delivered 12,640 in the second quarter, a 59 percent jump from a year earlier. And on Sunday, Tesla reported an 83 percent jump in global sales in the second quarter.Cox estimated that more than 500,000 electric vehicles were sold in the United States in the first six months of the year, and that more than one million would be sold in 2023, setting a record for battery-powered cars and trucks in the country.Tesla, which does not break out its sales by country, remains the largest seller of E.V.s in the U.S. market. Cox estimated that the company sold more than 161,000 electric cars in the second quarter in the United States. Ford Motor, which offers three fully electric models., reports its quarterly sales on Thursday.G.M. sold more 15,300 battery-powered cars and trucks, but nearly 14,000 were the Chevrolet Bolt, a smaller vehicle that the company will stop making at the end of the year. The company also sold 1,348 Cadillac Lyriq electric S.U.V.s and 47 GMC Hummer pickup trucks. Chevrolet will soon start delivering a new electric Silverado pickup truck, which uses the same battery technology as the Lyriq and Hummer. More

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    Harry Markowitz, Nobel-Winning Pioneer of Modern Portfolio Theory, Dies at 95

    He overturned the traditional approach to buying stocks by examining the relationship between risk and reward.Harry M. Markowitz, an economist who launched a revolution in finance, upending traditional thinking about buying stocks and earning the Nobel in economic science in 1990 for his breakthrough, died on Thursday in San Diego. He was 95.The death, at a hospital, was caused by pneumonia and sepsis, Mary McDonald, a longtime assistant to Dr. Markowitz, said.Until Dr. Markowitz came along, the investment world assumed that the best stock-market strategy was simply to choose the shares of a group of companies that were thought to have the best prospects.But in 1952, he published his dissertation, “Portfolio Selection,” which overturned this common sense approach with what became known as modern portfolio theory, widely referred to as M.P.T.The heart of his research was grounded in the basic relationship between risk and reward. He showed that the risk in any portfolio is less dependent on the riskiness of its component stocks and other assets than how they relate to one another. It was the first time that the benefits of diversification had been codified and quantified, using advanced mathematics to calculate correlations and variations from the mean.This breakthrough insight and its corollaries have now permeated all aspects of money management, with few professionals unfamiliar with his work.“Modern portfolio theory has gone from the halls of academia to investment management mainstream, or from gown to town,” Robert Arnott, chief executive of Research Associates, a large investment manager in Newport Beach, Calif., said in a videotaped interview with Dr. Markowitz.When Dr. Markowitz heard one of his peers describe how his work had brought “a process” to what had been, until the 1950s, the “haphazard” creation of institutional portfolios, he knew he deserved his reputation as the father of modern portfolio theory, he said.“That moment was one of these things where you feel a chill run up your spine,” he said. “I understood what I had started.”In 1999, the financial newspaper Pensions & Investments named him “man of the century.”Related work on investments led Dr. Markowitz to be regarded as a pioneer of behavioral finance, the study of how people make choices in practical situations, as in buying insurance or lottery tickets.Recognizing that the pain of loss typically exceeds the joy of comparable gain, he found it crucial to know how a gamble is framed in terms of possible outcomes and the size of the stakes.Dr. Markowitz won renown in two other fields. He developed “sparse matrix” techniques for solving very large mathematical optimization problems — techniques that are now standard in production software for optimization programs. And he designed and supervised the development of Simscript, which is used for programming computer simulations of systems like factories, transportation and communications networks.In 1989 Dr. Markowitz received the John von Neumann Theory Prize from the Operations Research Society of America for his work in portfolio theory, sparse matrix techniques and Simscript.His focus was always on applying mathematics and computers to practical problems, particularly involving business in uncertain conditions.“I’m not a one-shot Nobel laureate — only doing one thing,” Dr. Markowitz said in an interview for this obituary in 2014. Although he was 87 at the time, he was embarked on a monumental analysis of securities risk and return. The seminal 1952 paper, in The Journal of Finance, was expanded into his best-known work, “Portfolio Selection: Efficient Diversification of Investments,” in 1959.Harry Max Markowitz was born on Aug. 24, 1927, in Chicago, the only child of Morris and Mildred Markowitz, who owned a small grocery store. In high school he began to read the original works of Darwin and such classical philosophers as René Descartes and David Hume. In financial terms, Hume’s work lay behind the maxim that past performance is not a guide to the future.He continued on this track in a two-year bachelor’s program at the University of Chicago, where, inspired in part by Hume’s focus on the uncertainty of knowledge, he decided to pursue economics.It was in graduate school, where he studied under Milton Friedman and other eminent economists, that a chance conversation on possible dissertation topics led to his work applying mathematical methods to the stock market.The basic concepts of portfolio theory came to Dr. Markowitz one afternoon in the library while reading an investment book by the economist John Burr Williams.Dr. Markowitz was awarded the Nobel in economic science in 1990, sharing it with Merton H. Miller and William F. Sharpe.Sandy Huffaker for The New York Times“Williams proposed that the value of a stock should equal the present value of its future dividends,” Dr. Markowitz wrote in a brief autobiography for the Nobel committee. “Since future dividends are uncertain, I interpreted Williams’s proposal to be to value a stock by its expected future dividends.”But if investors were interested only in the expected values of securities, he figured, then that implied that the best, or maximized, portfolio would consist of the single most appealing stock.“This, I knew, was not the way investors did or should act,” he concluded. “Investors diversify because they are concerned with risk as well as return.”He set out to measure the relationships among a diverse assortment of stocks to construct the most efficient portfolio, and to chart what he called a “frontier,” where no additional return can be obtained without also increasing risk.At the RAND Corporation, during stints in the 1950s and ’60s, Dr. Markowitz worked on practical problems in American industry that required the development of simulation methods; he created the Simscript language to reduce their programming time.He went on to work for IBM and General Electric, where he built models of manufacturing plants. In 1962 he co-founded the California Analysis Center Incorporated, a computer-software company that would become CACI International.Dr. Markowitz’s first two marriages, to Luella Johnson and Gloria Hardt, ended in divorce. In 1970 he married Barbara Gay. She died in 2021.Mr. Markowitz is survived by two children from his first marriage, Susan Ulvestad and David Markowitz; two from his second, Laurie Raskin and Steven Markowitz; his wife’s son from a previous marriage, James Marks; 13 grandchildren; and more than a dozen great-grandchildren. He lived in San Diego.Dr. Markowitz in his office in 2012. “I’m not a one-shot Nobel laureate — only doing one thing,” he said in an interview in 2014.Sandy Huffaker for The New York TimesIn 1968 Dr. Markowitz began to manage a successful hedge fund, Arbitrage Management Company, based on M.P.T., that is believed to have been the first to engage in computerized arbitrage trading.Dr. Markowitz was a professor at Baruch College of the City University of New York when he was awarded the Nobel in economic science, sharing it with Merton H. Miller and William F. Sharpe. He also served on the faculties of Rutgers University, the University of Pennsylvania’s Wharton School, the University of California at Los Angeles and finally at the Rady School of Management at the University of California, San Diego.After submitting his landmark dissertation, Dr. Markowitz took a job at RAND and was fully confident that “I know this stuff cold” when he returned to Chicago in 1955 to defend it.Within a few minutes, however, Professor Friedman told him that while he could find no mistakes, the topic was extremely novel. “We cannot award you a Ph.D. in economics for a dissertation that is not economics,” he said.At this point, Dr. Markowitz recounted, “my palms began to sweat” and he was sent into a hallway, where he waited for about five minutes.Finally, a panel member emerged and said, “Congratulations, Dr. Markowitz.”Dr. Markowitz insisted that he had not suspected the joke.Alex Traub More

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    A $1 Trillion Borrowing Binge Looms After Debt Limit Standoff

    The government has avoided default, but the effects of the debt-ceiling brinkmanship may still ripple across the economy.The United States narrowly avoided a default when President Biden signed legislation on Saturday that allowed the Treasury Department, which was perilously close to running out of cash, permission to borrow more money to pay the nation’s bills.Now, the Treasury is starting to build up its reserves and the coming borrowing binge could present complications that rattle the economy.The government is expected to borrow around $1 trillion by the end of September, according to estimates by multiple banks. That steady state of borrowing is set to pull cash from banks and other lenders into Treasury securities, draining money from the financial system and amplifying the pressure on already stressed regional lenders.To lure investors to lend such huge amounts to the government, the Treasury faces rising interest costs. Given how many other financial assets are tied to the rate on Treasuries, higher borrowing costs for the government also raise costs for banks, companies and other borrowers, and could create a similar effect to roughly one or two quarter-point rate increases from the Federal Reserve, analysts have warned.“The root cause is still very much the whole debt ceiling standoff,” said Gennadiy Goldberg, an interest rate strategist at TD Securities.Some policymakers have indicated that they may opt to take a break from raising rates when the central bank meets next week, in order to assess how policy has so far impacted the economy. The Treasury’s cash rebuild could undermine that decision, because it would push borrowing costs higher regardless.That could in turn exacerbate worries among investors and depositors that flared up in the spring over how higher interest rates had eroded the value of assets held at small and medium sized banks.The deluge of Treasury debt also amplifies the effects of another Fed priority: the shrinking of its balance sheet. The Fed has curtailed the number of new Treasuries and other debt that it buys, slowly letting old debt roll-off and already leaving private investors with more debt to digest.“The potential hit to the economy once Treasury goes to market selling that much debt could be extraordinary,” said Christopher Campbell, who served as assistant Treasury secretary for financial institutions from 2017 to 2018. “It’s difficult to imagine Treasury going out and selling what could be $1 trillion of bonds and not have that have an impact on borrowing costs.”The cash balance at the Treasury Department’s general account fell below $40 billion last week as lawmakers raced to reach an agreement to increase the nation’s borrowing cap. Mr. Biden on Saturday signed legislation that suspended the $31.4 trillion debt limit until January 2025.For months, Treasury Secretary Janet L. Yellen had been using accounting maneuvers known as extraordinary measures to delay a default. Those included suspending new investments in retirement funds for postal workers and civil servants.Restoring those investments is essentially a simple accounting fix, but refilling the government’s cash coffers is more complicated. The Treasury Department said on Wednesday that it hoped to borrow enough to rebuild its cash account to $425 billion by the end of June. It will need to borrow much more than that to account for planned spending, analysts said.“The supply floodgates are now open,” said Mark Cabana, an interest rate strategist at Bank of America.A Treasury Department spokesman said that when making decisions on issuing debt, the department carefully considered investor demand and market capacity. In April, Treasury officials started surveying key market players about how much they thought the market could absorb after the debt-limit standoff was resolved. The Federal Reserve Bank of New York this month asked large banks for their estimates of what they expected to happen to bank reserves and borrowing from certain Fed facilities in the next months.The spokesman added that the department had managed similar situations before. Notably, after a bout of debt-limit wrangling in 2019, the Treasury Department rebuilt its cash pile over the summer, contributing to factors that drained reserves from the banking system and upended the market’s plumbing, prompting the Fed to intervene to stave off a worse crisis.One of the things the Fed did was establish a program for repurchase agreements, a form of financing with Treasury debt posted as collateral. That backstop could provide a safety net to banks short on cash from lending to the government, though its use was widely seen in the industry as a last resort.A similar but opposite program, which doles out Treasury collateral in exchange for cash, now holds over $2 trillion, mostly from money market funds that have struggled to find attractive, safe investments. This is viewed by some analysts as money on the sidelines that could flow into the Treasury’s account as it offers more attractive interest rates on its debt, reducing the impact of the borrowing spree.But the mechanism by which the government sells its debt, debiting bank reserves held at the Fed in exchange for the new bills and bonds, could still test the resilience of some smaller institutions. As their reserves decline, some banks may find themselves short on cash, while investors and others may not be willing to lend to institutions they see as troubled, given recent worries about some corners of the industry.That could leave some banks reliant on another Fed facility, set up at the height of this year’s banking turmoil, to provide emergency funding to deposit taking institutions at relatively high cost.“You may see one or two or three banks caught unprepared and suffer the consequences, starting a daisy chain of fear that can permeate through the system and create trouble,” Mr. Goldberg of TD Securities said. More

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    Companies Push Prices Higher, Protecting Profits but Adding to Inflation

    Corporate profits have been bolstered by higher prices even as some of the costs of doing business have fallen in recent months.The prices of oil, transportation, food ingredients and other raw materials have fallen in recent months as the shocks stemming from the pandemic and the war in Ukraine have faded. Yet many big businesses have continued raising prices at a rapid clip.Some of the world’s biggest companies have said they do not plan to change course and will continue increasing prices or keep them at elevated levels for the foreseeable future.That strategy has cushioned corporate profits. And it could keep inflation robust, contributing to the very pressures used to justify surging prices.As a result, some economists warn, policymakers at the Federal Reserve may feel compelled to keep raising interest rates, or at least not lower them, increasing the likelihood and severity of an economic downturn.“Companies are not just maintaining margins, not just passing on cost increases, they have used it as a cover to expand margins,” Albert Edwards, a global strategist at Société Générale, said, referring to profit margins, a measure of how much businesses earn from every dollar of sales.PepsiCo, the snacks and beverage maker, has become a prime example of how large corporations have countered increased costs, and then some.Hugh Johnston, the company’s chief financial officer, said in February that PepsiCo had raised its prices by enough to buffer further cost pressures in 2023. At the end of April, the company reported that it had raised the average price across its products by 16 percent in the first three months of the year. That added to a similar size price increase in the fourth quarter of 2022 and increased its profit margin.“I don’t think our margins are going to deteriorate at all,” Mr. Johnston said in a recent interview with Bloomberg TV. “In fact, what we’ve said for the year is we’ll be at least even with 2022, and may in fact increase margins during the course of the year.”The bags of Doritos, cartons of Tropicana orange juice and bottles of Gatorade drinks sold by PepsiCo are now substantially pricier. Customers have grumbled, but they have largely kept buying. Shareholders have cheered. PepsiCo declined to comment.PepsiCo is not alone in continuing to raise prices. Other companies that sell consumer goods have also done well.The average company in the S&P 500 stock index increased its net profit margin from the end of last year, according to FactSet, a data and research firm, countering the expectations of Wall Street analysts that profit margins would decline slightly. And while margins are below their peak in 2021, analysts are forecasting that they will keep expanding in the second half of the year.For much of the past two years, most companies “had a perfectly good excuse to go ahead and raise prices,” said Samuel Rines, an economist and the managing director of Corbu, a research firm that serves hedge funds and other investors. “Everybody knew that the war in Ukraine was inflationary, that grain prices were going up, blah, blah, blah. And they just took advantage of that.”But those go-to rationales for elevating prices, he added, are now receding.The Producer Price Index, which measures the prices businesses pay for goods and services before they are sold to consumers, reached a high of 11.7 percent last spring. That rate has plunged to 2.3 percent for the 12 months through April.The Consumer Price Index, which tracks the prices of household expenditures on everything from eggs to rent, has also been falling, but at a much slower rate. In April, it dropped to 4.93 percent, from a high of 9.06 percent in June 2022. The price of carbonated drinks rose nearly 12 percent in April, over the previous 12 months.“Inflation is going to stay much higher than it needs to be, because companies are being greedy,” Mr. Edwards of Société Générale said.But analysts who distrust that explanation said there were other reasons consumer prices remained high. Since inflation spiked in the spring of 2021, some economists have made the case that as households emerged from the pandemic, demand for goods and services — whether garage doors or cruise trips — was left unsated because of lockdowns and constrained supply chains, driving prices higher.David Beckworth, a senior research fellow at the right-leaning Mercatus Center at George Mason University and a former economist for the Treasury Department, said he was skeptical that the rapid pace of price increases was “profit-led.”Corporations had some degree of cover for raising prices as consumers were peppered with news about imbalances in the economy. Yet Mr. Beckworth and others contend that those higher prices wouldn’t have been possible if people weren’t willing or able to spend more. In this analysis, stimulus payments from the government, investment gains, pay raises and the refinancing of mortgages at very low interest rates play a larger role in higher prices than corporate profit seeking.“It seems to me that many telling the profit story forget that households have to actually spend money for the story to hold,” Mr. Beckworth said. “And once you look at the huge surge in spending, it becomes inescapable to me where the causality lies.”Mr. Edwards acknowledged that government stimulus measures during the pandemic had an effect. In his eyes, this aid meant that average consumers weren’t “beaten up enough” financially to resist higher prices that might otherwise make them flinch. And, he added, this dynamic has also put the weight of inflation on poorer households “while richer ones won’t feel it as much.”The top 20 percent of households by income typically account for about 40 percent of total consumer spending. Overall spending on recreational experiences and luxuries appears to have peaked, according to credit card data from large banks, but remains robust enough for firms to keep charging more. Major cruise lines, including Royal Caribbean, have continued lifting prices as demand for cruises has increased going into the summer.Many people who are not at the top of the income bracket have had to trade down to cheaper products. As a result, several companies that cater to a broad customer base have fared better than expected, as well.McDonald’s reported that its sales increased by an average of 12.6 percent per store for the three months through March, compared with the same period last year. About 4.2 percent of that growth has come from increased traffic and 8.4 percent from higher menu prices.The company attributed the recent menu price increases to higher expenses for labor, transportation and meat. Several consumer groups have responded by pointing out that recent upticks in the cost of transportation and labor have eased.A representative for the company said in an email that the company’s strong results were not just a result of price increases but also “strong consumer demand for McDonald’s around the world.”Other corporations have found that fewer sales at higher prices have still helped them earn bigger profits: a dynamic that Mr. Rines of Corbu has coined “price over volume.”Colgate-Palmolive, which in addition to commanding a roughly 40 percent share of the global toothpaste market, also sells kitchen soap and other goods, had a standout first quarter. Its operating profit for the year through March rose 6 percent from the same period a year earlier — the result of a 12 percent increase in prices even as volume declined by 2 percent.The recent bonanza for corporate profits, however, may soon start to fizzle.Research from Glenmede Investment Management indicates there are signs that more consumers are cutting back on pricier purchases. The financial services firm estimates that households in the bottom fourth by income will exhaust whatever is collectively left of their pandemic-era savings sometime this summer.Some companies are beginning to find resistance from more price-sensitive customers. Dollar Tree reported rising sales but falling margins, as lower-income customers who tend to shop there searched for deals. Shares in the company plunged on Thursday as it cut back its profit expectations for the rest of the year. Even PepsiCo and McDonald’s have recently taken hits to their share prices as traders fear that they may not be able to keep increasing their profits.For now, though, investors appear to be relieved that corporations did as well as they did in the first quarter, which has helped keep stock prices from falling broadly.Before large companies began reporting how they did in the first three months of the year, the consensus among analysts was that earnings at companies in the S&P 500 would fall roughly 7 percent compared with the same period in 2022. Instead, according to data from FactSet, earnings are expected to have fallen around 2 percent once all the results are in.Savita Subramanian, the head of U.S. equity and quantitative strategy at Bank of America, wrote in a note that the latest quarterly reports “once again showed corporate America’s ability to preserve margins.” Her team raised overall earnings growth expectations for the rest of the year, and 2024. More

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    Late-Night Negotiating Frenzy Left First Republic in JPMorgan’s Control

    The resolution of First Republic Bank came after a frantic night of deal making by government officials and executives at the country’s biggest bank.Lawmakers and regulators have spent years erecting laws and rules meant to limit the power and size of the largest U.S. banks. But those efforts were cast aside in a frantic late-night effort by government officials to contain a banking crisis by seizing and selling First Republic Bank to the country’s biggest bank, JPMorgan Chase.At about 1 a.m. Monday, hours after the Federal Deposit Insurance Corporation had been expected to announce a buyer for the troubled regional lender, government officials informed JPMorgan executives that they had won the right to take over First Republic and the accounts of its well-heeled customers, most of them in wealthy coastal cities and suburbs.The F.D.I.C.’s decision appears, for now, to have quelled nearly two months of simmering turmoil in the banking sector that followed the sudden collapse of Silicon Valley Bank and Signature Bank in early March. “This part of the crisis is over,” Jamie Dimon, JPMorgan’s chief executive, told analysts on Monday in a conference call to discuss the acquisition.For Mr. Dimon, it was a reprise of his role in the 2008 financial crisis when JPMorgan acquired Bear Stearns and Washington Mutual at the behest of federal regulators.But the resolution of First Republic has also brought to the fore long-running debates about whether some banks have become too big too fail partly because regulators have allowed or even encouraged them to acquire smaller financial institutions, especially during crises.“Regulators view them as adults and business partners,” said Tyler Gellasch, president of Healthy Markets Association, a Washington-based group that advocates greater transparency in the financial system, referring to big banks like JPMorgan. “They are too big to fail and they are afforded the privilege of being so.”He added that JPMorgan was likely to make a lot of money from the acquisition. JPMorgan said on Monday that it expected the deal to raise its profits this year by $500 million.JPMorgan will pay the F.D.I.C. $10.6 billion to acquire First Republic. The government agency expects to cover a loss of about $13 billion on First Republic’s assets.`Normally a bank cannot acquire another bank if doing so would allow it to control more than 10 percent of the nation’s bank deposits — a threshold JPMorgan had already reached before buying First Republic. But the law includes an exception for the acquisition of a failing bank.The F.D.I.C. sounded out banks to see if they would be willing to take First Republic’s uninsured deposits and if their primary regulator would allow them to do so, according to two people familiar with the process. On Friday afternoon, the regulator invited the banks into a virtual data room to look at First Republic’s financials, the two people said. The government agency, which was working with the investment bank Guggenheim Securities, had plenty of time to prepare for the auction. First Republic had been struggling since the failure of Silicon Valley Bank, despite receiving a $30 billion lifeline in March from 11 of the country’s largest banks, an effort led by Mr. Dimon of JPMorgan.By the afternoon of April 24, it had became increasingly clear that First Republic couldn’t stand on its own. That day, the bank revealed in its quarterly earnings report that it had lost $102 billion in customer deposits in the last weeks of March, or more than half what it had at the end of December.Ahead of the earnings release, First Republic’s lawyers and other advisers told the bank’s senior executives not to answer any questions on the company’s conference call, according to a person briefed on the matter, because of the bank’s dire situation.The revelations in the report and the executives’ silence spooked investors, who dumped its already beaten-down stock.When the F.D.I.C. began the process to sell First Republic, several bidders including PNC Financial Services, Fifth Third Bancorp, Citizens Financial Group and JPMorgan expressed an interest. Analysts and executives at those banks began going through First Republic’s data to figure out how much they would be willing to bid and submitted bids by early afternoon Sunday.Regulators and Guggenheim then returned to the four bidders, asking them for their best and final offers by 7 p.m. E.T. Each bank, including JPMorgan Chase, improved its offer, two of the people said.Regulators had indicated that they planned to announce a winner by 8 p.m., before markets in Asia opened. PNC executives had spent much of the weekend at the bank’s Pittsburgh headquarters putting together its bid. Executives at Citizens, which is based in Providence, R.I., gathered in offices in Connecticut and Massachusetts. But 8 p.m. rolled by with no word from the F.D.I.C. Several hours of silence followed.For the three smaller banks, the deal would have been transformative, giving them a much bigger presence in wealthy places like the San Francisco Bay Area and New York City. PNC, which is the sixth-largest U.S. bank, would have bolstered its position to challenge the nation’s four large commercial lenders — JPMorgan, Bank of America, Citigroup and Wells Fargo.Ultimately, JPMorgan not only offered more money than others and agreed to buy the vast majority of the bank, two people familiar with the process said. Regulators also were more inclined to accept the bank’s offer because JPMorgan was likely to have an easier time integrating First Republic’s branches into its business and managing the smaller bank’s loans and mortgages either by holding onto them or selling them, the two people said.As the executives at the smaller banks waited for their phones to ring, the F.D.I.C. and its advisers continued to negotiate with Mr. Dimon and his team, who were seeking assurances that the government would safeguard JPMorgan against losses, according to one of the people.At around 3 a.m., the F.D.I.C. announced that JPMorgan would acquire First Republic.An F.D.I.C. spokesman declined to comment on other bidders. In its statement, the agency said, “The resolution of First Republic Bank involved a highly competitive bidding process and resulted in a transaction consistent with the least-cost requirements of the Federal Deposit Insurance Act.” The announcement was widely praised in the financial industry. Robin Vince, the president and chief executive of Bank of New York Mellon, said in an interview that it felt “like a cloud has been lifted.”Some financial analysts cautioned that the celebrations might be overdone.Many banks still have hundreds of billions of dollars in unrealized losses on Treasury bonds and mortgage-backed securities purchased when interest rates were very low. Some of those bond investments are now worth much less because the Federal Reserve has sharply raised rates to bring down inflation.Christopher Whalen of Whalen Global Advisors said the Fed fueled some of the problems at banks like First Republic with an easy money policy that led them to load up on bonds that are now performing poorly. “This problem will not go away until the Fed drops interest rates,” he said. “Otherwise, we’ll see more banks fail.”But Mr. Whalen’s view is a minority opinion. The growing consensus is that the failures of Silicon Valley, Signature and now First Republic will not lead to a repeat of the 2008 financial crisis that brought down Bear Stearns, Lehman Brothers and Washington Mutual.The assets of the three banks that failed this year are greater than of the 25 banks that failed in 2008 after adjusting for inflation. But 465 banks failed in total from 2008 to 2012.One unresolved issue is how to deal with banks that still have a high percentage of uninsured deposits — money from customers well in excess of the $250,000 federally insured cap on deposits. The F.D.I.C. on Monday recommended that Congress consider expanding its ability to protect deposits.Many investors and depositors are already assuming that the government will step in to protect all deposits at any failing institution by invoking a systemic risk exception — something they did with Silicon Valley Bank and Signature Bank. But that’s easy to do when it is just a few banks that run into trouble and more difficult if many banks have problems.Another looming concern is that midsize banks will pull back on lending to preserve capital if they are subject to the kind of bank runs that took place at Silicon Valley Bank and First Republic. Depositors might also move their savings to money market funds, which tend to offer higher returns than savings or checking accounts.Midsize banks also need to brace for more exacting oversight from the Fed and the F.D.I.C., which criticized themselves in reports released last week about the bank failures in March.Regional and community banks are the main source of financing for the commercial real estate industry, which encompasses office buildings, apartment complexes and shopping centers. An unwillingness by banks to lend to developers could stymie plans for new construction.Any pullback in lending could lead to a slowdown in economic growth or a recession.Some experts said that despite those challenges and concerns about big banks getting bigger, regulators have done an admirable job in restoring stability to the financial system.“It was an extremely difficult situation, and given how difficult it was, I think it was well done,” said Sheila Bair, who was chair of the F.D.I.C. during the 2008 financial crisis. “It means that big banks becoming bigger when smaller banks begin to fail is inevitable,” she added.Reporting was contributed by More

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    First Republic Lurches as It Struggles to Find a Savior

    The bank is sitting on big losses and paying more to borrow money than it is making on its loans to homeowners and businesses.First Republic Bank is sliding dangerously into a financial maelstrom, one from which an exit appears increasingly difficult.Hardly a household name until a few weeks ago, First Republic is now a top concern for investors and bankers on Wall Street and officials in Washington. The likeliest outcome for the bank, people close to the situation said, would need to involve the federal government, alone or in some combination with a private investor.While the bank, with 88 branches focused mostly on the coasts, is still open for business, no one connected to it, including its executives and some board members, would say how much longer it could exist in its current form.First Republic, based in San Francisco, has been widely seen as the most in-danger bank since Silicon Valley Bank and Signature Bank collapsed last month. Like Silicon Valley Bank, it catered to the well-off — a group of customers able to pull their money en masse — and amassed a hoard of loans and assets whose value has suffered in an era of rising interest rates.Yet while SVB and Signature survived just days under pressure, First Republic has neither fallen nor thrived. It has withstood a deposit flight and a cratering stock price. Every attempt by the bank’s executives and advisers to project confidence appears to have had the opposite effect.The bank’s founder and executive chairman, Jim Herbert, until recently one of the more admired figures in the industry, has disappeared from public view. On March 13, Jim Cramer, the CNBC host, said on the air that Mr. Herbert had told him that the bank was doing “business as usual,” and that there were “not any sizable number of people wanting their money.”That was belied by the bank’s earnings report this week, which stated that “First Republic began experiencing unprecedented deposit outflows” on March 10.Neither Mr. Herbert nor the bank’s representatives would comment Wednesday, as First Republic’s stock continued a harrowing slide, dropping about 30 percent to close the day at just $5.69 — down from about $150 a year earlier. On Tuesday, the stock plummeted 49 percent. The company is now worth a little more than $1 billion, or about one-twentieth its valuation before the banking turmoil began in March.In what has become a disquieting pattern, the New York Stock Exchange halted trading in the shares 16 times on Wednesday because volatility thresholds were triggered.

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    First Republic Bank’s share price
    Source: FactSetBy The New York TimesStock prices are always an imperfect measure of a lender’s health, and there are strict rules about what types of entities can acquire a bank. Still, First Republic’s stock slide means that its branches and $103 billion in deposits could be bought for, theoretically, an amount less than the market capitalization of Portillo’s, the Chicago-area hot dog purveyor. Of course, any company that buys First Republic would be taking on multibillion-dollar losses on its loan portfolio and assets.The bank is more likely to fall into the hands of the government. That outcome would likely wipe out shareholders and put the bank’s fate in the hands of the Federal Deposit Insurance Corporation.The F.D.I.C. by its own rules guarantees that deposit accounts only up to $250,000 will be made whole, though in practice — and in the case of SVB and Signature — it can make accounts of all sizes whole if several top government officials invoke a special legal provision. Of First Republic’s remaining deposits, roughly half, or nearly $50 billion, were over the insured threshold as of March 31, including the $30 billion deposited by big banks in March.In conversations with industry and government officials, First Republic’s advisers have proposed various restructuring solutions that would involve the government, in one form or another, according to people familiar with the matter. The government could seek to minimize a buyer’s financial risk, the people said, asking not to be identified.Thus far, the Biden administration and Federal Reserve appear to have demurred. Policy experts have said officials would find it more difficult to intervene to save First Republic because of restrictions Congress enacted after the 2008 financial crisis.As a result, six weeks of efforts by First Republic and its advisers to sell all or part of its business have not resulted in a viable plan to save the bank — at least thus far.The state of affairs became plain after the close of trading on Monday, when First Republic announced first-quarter results that showed that it had lost $102 billion in customer deposits since early March. Those withdrawals were slightly ameliorated by the coordinated emergency move of 11 large U.S. banks to temporarily deposit $30 billion into First Republic.To plug the hole, First Republic borrowed $92 billion, mostly from the Fed and government-backed lending groups, essentially replacing its deposits with loans. While the move helped keep the bank going, it essentially undermined its business model, replacing relatively cheap deposits with more expensive loans.The bank is paying more in interest to the government on that new debt than it is earning on its long-term investments, which include mortgage loans to its well-heeled customers on the coasts, funding for real estate projects and the like.One of the biggest parts of the bank’s business was offering large home loans with attractive interest rates to affluent people. And unlike other banks that make a lot of mortgages, First Republic kept many of those loans rather than packaging them into mortgage-backed securities and selling them to investors. At the end of December, the bank had nearly $103 billion in home loans on its books, up from $80 billion a year earlier.But most of those loans were made when the mortgage interest rates were much lower than they are today. That means those loans are worth a lot less, and anybody looking to buy First Republic would be taking on those losses.It is not clear what First Republic can realistically do to make itself or its assets more attractive to a buyer.Among the only tangible changes that the bank has committed to is cutting as much as 25 percent of its staff and slashing executive compensation by an unspecified amount. On its earnings call, First Republic’s executives declined to take questions and spoke for just 12 minutes. More

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    First Republic Bank Enters New Free Fall as Concerns Mount

    The bank’s shares fell by about 50 percent on Tuesday, a day after it said customers had pulled $100 billion in deposits in the first quarter.First Republic Bank’s stock closed down 50 percent Tuesday, a day after a troubling earnings report and a conference call with analysts in which the company’s executives refused questions. The speed of the decline set off a series of volatility-induced trading halts by the New York Stock Exchange.On Monday, after the close of regular stock trading, First Republic released results that showed just how perilous the bank’s future had become since mid-March following the failure of Silicon Valley Bank and Signature Bank. First Republic said its clients pulled $102 billion in deposits in the first quarter — well over half the $176 billion it held at the end of last year.The bank received a temporary $30 billion lifeline last month from the nation’s biggest banks to help shore up its business. Those banks, however, can withdraw their deposits as soon as July. In the first quarter, First Republic also borrowed $92 billion, mostly from the Federal Reserve and government-backed lending groups, essentially replacing its deposits with loans.First Republic is considered the most vulnerable regional bank after the banking crisis in March. What happens to it could also affect investors’ confidence in other regional banks and the financial system more broadly.The bank’s executives did little to establish confidence during its conference call, offering just 12 minutes of prepared remarks. The bank also said on Monday that it would cut as much as a quarter of its work force, and slash executive compensation by an unspecified sum.“This is a trust issue, as it is for any bank, and when trust is lost, money will flee,” Aswath Damodaran, a finance professor at New York University, wrote in an email.An analyst at Wolfe Research, Bill Carcache, laid out what he called “the long list of questions we weren’t allowed to ask” in a research note on Tuesday. Among them: How can the bank survive without raising new money, and how can it continue to provide attentive customer service — a staple of its reputation among wealthy clients — while cutting the very staff who provide it?The bank’s options to save itself absent a government seizure or intervention are limited and challenging. No buyer has emerged for the bank in its entirety. Any bank or investor group interested in taking over the bank would have to take on First Republic’s loan portfolio, which could saddle the buyer with billions of dollars in losses based on the recent interest rate moves. The bank is also difficult to sell off in pieces because its customers use many different services like checking accounts, mortgages and wealth management.There are no easy solutions for First Republic’s situation, said Kathryn Judge, a financial regulation expert at Columbia Law School. “If there were attractive options, they would have pursued them already,” Ms. Judge explained.The Fed can no longer take on some of a bank’s financial risk to ease a takeover in the way it did in 2008, because reforms after the financial crisis changed its powers. And while the Federal Deposit Insurance Corporation might be able to help in some way, that would most likely involve failing the bank and invoking a “systemic risk exception,” which would require sign-off by officials across several agencies, Ms. Judge said.Yet if the bank does fail, the government will have to decide whether to protect its uninsured depositors, which could also be a tough call, she said.“There’s really no easy answer,” Ms. Judge said.Representatives for the Fed and the F.D.I.C. declined to comment.Shares of other banks also fell on Tuesday, though not nearly as much as First Republic. The KBW Bank Index, a proxy for the industry, closed down about 3.5 percent.Separately, the Fed said on Tuesday that its review of the supervision and regulation of Silicon Valley Bank will be released at 11 a.m. on Friday.Rob Copeland More

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    As Possible Debt Limit Crisis Nears, Wall Street Shrugs

    Few investors have focused on the possibility that Congress will not raise the nation’s borrowing limit in time to avoid an economically catastrophic default.WASHINGTON — Speaker Kevin McCarthy chose the New York Stock Exchange on Monday to deliver his most detailed comments yet on House Republicans’ demands for raising the nation’s borrowing limit. But his comments made little impression on Wall Street, where investors continue to trade stocks and Treasury bonds under the assumption that Congress and President Biden will find a way to avoid a calamitous government default.The lack of a market panic about the talks reflects a been-there, done-that attitude that investors have increasingly taken to partisan showdowns over taxes, spending and the government’s ability to pay its bills on time, which lawmakers often resolve at the last possible moment.But there are reasons to believe that this time could play out differently, starting with the chaos in Mr. McCarthy’s caucus — and new warnings that lawmakers might have less time to raise the $31.4 trillion limit than previously thought.The next few weeks will more precisely determine how quickly the government will exhaust its ability to pay bondholders, employees, Social Security recipients and everyone else it sends money to on a regular basis. That’s because data on the government’s tax receipts for the year will come into sharper focus after Tuesday’s deadline for people to file individual income tax returns for 2022.On Tuesday, Goldman Sachs economists sounded a warning that the potential default date could be much sooner than previous forecasts — which typically pegged the date in July or August — if revenue comes in soft. “While the data are still very preliminary, weak tax collections so far in April suggest an increased probability that the debt limit deadline will be reached in the first half of June,” they wrote.Republicans are refusing to raise the borrowing cap unless Mr. Biden agrees to reduce government spending and slow the growth of the national debt, a position that risks plunging the United States into recession if the Treasury Department runs out of money to pay all its bills on time. But Mr. McCarthy has struggled to unite his Republicans around specific cuts, even though he said Monday that he will put such a plan on the House floor next week.Moderates in the Republican caucus are wary of deep cuts to popular domestic programs, like education and national parks, that would be spurred by his proposal to cap domestic spending growth at a level well below the current inflation rate. Fiscal hawks, including a faction that resisted Mr. McCarthy’s appointment as speaker and could effectively force a vote to oust him at any time, have pushed for far more aggressive reductions. They include lawmakers who have never voted to raise or suspend the debt limit, even under President Donald J. Trump, who signed three suspensions of the limit into law.Mr. McCarthy detailed his plan to fellow Republicans on Tuesday. As outlined on Monday, it would raise the limit for about a year. It would also return most domestic spending to fiscal year 2022 levels and cap its growth over a decade. Mr. McCarthy also wants to add work requirements for recipients of federal food assistance and reduce federal regulations on fossil fuel development and other projects, which he says will increase economic growth.It is unclear if enough Republicans would vote for that package to ensure its passage in the House. Senate Democrats would almost certainly reject it, as would Mr. Biden, who has said repeatedly that he expects Congress to raise the borrowing limit with no strings attached.Mr. Biden has shown no indication that he will intervene to speed up discussions over raising the limit, or seek to broker any deals in Congress to do so. The president has said he will negotiate taxes and spending levels separately from the borrowing limit. But he and his aides are refusing to engage further with Mr. McCarthy on fiscal policy until Republicans rally around a budget plan.Mr. Biden slammed Mr. McCarthy’s plan in a speech on Tuesday, saying he has “proposed huge cuts to important programs that millions of Americans count on.” Mr. Biden said that Mr. McCarthy had “threatened to become the first speaker to default on our debt unless he gets the cuts he wants.”The only market thus far to reflect stress about the debt limit is the one most attuned to it: credit default swaps, which price the risk of the government failing to make scheduled payments to bondholders. Mr. McCarthy shrugged off that stress in a question-and-answer session after his speech on Monday.“Markets go up and down,” he said.Stock and bond markets were unfazed after Mr. McCarthy’s comments. They have in recent months been far more reactive to any evidence about what the Federal Reserve will do next in its campaign to tame high inflation by raising interest rates.Some White House officials privately say they expect Republicans to step up their efforts to raise the limit if and when investors begin to worry more about negotiations. That’s what happened in 2011, when a showdown between congressional Republicans and President Barack Obama nearly ended in default. Stocks plunged, and borrowing costs rose for corporations and home buyers. The damage took months to repair.Some Republicans are similarly hopeful that a wake-up on Wall Street will push Mr. Biden to change his negotiating stance, including Representative Patrick McHenry of North Carolina, the chairman of the House Financial Services Committee.“I don’t think market participants have any idea of how bad off these negotiations are right now, which should give them pause and concern, and actually should bring the president to the table,” he said.Catie Edmondson More