JPMorgan investors to scrutinize First Republic takeover

FILE PHOTO: Reuters interviews JPMorgan Chase & Co. CEO Jamie Dimon in Miami, Florida

By Nupur Anand

NEW YORK (Reuters) -As JPMorgan Chase & Co CEO Jamie Dimon prepares to take the stage for the bank's investor day on Monday, he can expect plenty of questions about its purchase of failed First Republic Bank.

Analysts will seek more details about the deal and JPMorgan's plans to integrate the business into the largest U.S. bank.JPMorgan's succession plans will also be in focus after Morgan Stanley's CEO said on Friday he would step down within a year.

Here are some key themes that investors are watching.

FIRST REPUBLIC

JPMorgan has agreed to undertake $173 billion of the failed bank's loans, $30 billion of securities and $92 billion of deposits after First Republic was shuttered by authorities earlier this month.

Dimon has said he expects blowback from the transaction, according to an interview on Bloomberg TV.

An acquisition of this scale will raise question on integration, execution risks, employee retention among others, analysts said.

"JPM views FRC as more complementary to its mass affluent approach than its ultra high net worth offering," Jason Goldberg, Brian Morton and Matthew Kesselhaut analysts at Barclays said in a note. They expect First Republic to be additive to JPMorgan's consumer and community banking business.

JPMorgan has made 19 acquisitions since 2020 but the last major purchases of this scale were in 2008 during the financial crisis-era takeovers of Bear Stearns and Washington Mutual.

SUCCESSION

After Morgan Stanley CEO James Gorman's announcement said he plans to step down next 12 months and take on the role of executive chairman, Dimon's succession plan will garner some attention.

Dimon, 67, has been at the helm for more than 17 years. That is longer than Gorman, who at 64 years has been the CEO for 13 years.

The company's proxy statement identified its President and Chief Operating officer Daniel Pinto “as a key executive who is immediately ready to step into the role of sole CEO, should the need arise in the near-term.”

ECONOMY

JPMorgan is viewed as an economic bellwether. Its executives' commentary is watched closely by financial markets.

Dimon has warned that a failure to raise the U.S. debt ceiling is potentially catastrophic, and the bank has created a war room to tackle the situation with daily meetings.

He and other financial CEOs met Janet Yellen in Washington this week to discuss the health of the banking system and the debt ceiling, a source said.

GROWTH

The country's largest lender emerged as one of the biggest beneficiaries of turmoil in the banking industry after the collapse of two lenders in March, reporting first quarter profits that beat expectations and an influx of deposits.

The investor day should underscore the notion that “Goliath is Winning,” Wells Fargo analyst Mike Mayo said in a note.

JPMorgan is also expected to reiterate its target for return on tangible common equity -- a key metric which measures how well a bank uses shareholder money to produce profit -- of 17%.

"What we may hear about is what this ROTCE could be if a recession hit in '23, which would translate into higher credit costs and potentially rate cuts," wrote Erika Najarian, Robert Placet and Nicholas Holowko, analysts at UBS.

Commentary around deposit growth, strategic opportunities, loan loss provisions, and expenses are some of the other themes that will be keenly watched.

Dimon has said that the bank is unlikely to acquire another struggling lender.

(Reporting by Nupur Anand in New York; Editing by Nick Zieminski and Lananh Nguyen)