Morning Brew Daily - JPMorgan Buys First Republic Bank, What is Bluesky? & ChatGPT Negotiations

Episode Date: May 1, 2023

Episode 50: Neal and Toby dive into JPMorgan's acquisition of First Republic Bank and what it means for the banking crisis. Plus I bet you randomly heard about an app called Bluesky this weekend, but what is it and why is it feel kinda like Twitter? Meanwhile ChatGPT is invading the workplace from boosting employee productivity to even helping you negotiate salaries. And the Met Gala kicks off Monday night, the guys dig into the numbers into why this event could actually be big business. Finally its a huge week ahead with Apple earnings, the Fed's rate decision and even King Charles III's coronation. Learn more about our sponsor, Fidelity: https://fidelity.com/stocksbytheslice Listen Here: https://link.chtbl.com/MBD Watch Here: https://www.youtube.com/@MorningBrewDailyShow Learn more about your ad choices. Visit megaphone.fm/adchoices

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Good morning brew daily show. I am Neil Fryman. And I'm Toby. Today on the pod, AI might have better bedside manner than your doctor, and Toby and I will choose our winners of this past weekend. Then, Neil, could the banking crisis be over? We'll see when we talk about First Republic Bank and its new owner. Then we'll head to the red carpet to give you the lowdown on this year's Met Gala. It's Monday, May 1st, let's ride. All right, Toby, we are all anxious to hear about how your triathlon went in Florida this weekend. It went swimmingly, and by swimmingly, I meant I actually didn't swim.

It turned into a du-athlorn or a biathlon because they canceled the swim portion of the event because the waves were too big. So it was really fun still. It was run, bike, run, so not a true triathlon, but I had a good time, competed well. You beat your family, which is the most important. I beat my brother. I beat my cousins, which was the most important part. I also got taken to the medical tent after because I suffered a little heat exhaustion, but that's Florida for you.

Not to one up you, but I kind of did a Peloton ride. The wind was perrocious outside. I was looking out of window and it looked bad, but I was nice and dry. Next year, you're coming down and doing the draft with me. Okay, let's get into the news. Neil, it's kind of the end of a mini era. The banking crisis has reached a little bit of a conclusion after J.P. Morgan Chase agreed to acquire First Republic Bank in a deal facilitated by

banking regulators early this morning. So let's do a quick recap on how we got to this point. First Republic Bank ran into many of the same issues as Silicon Valley Bank. Its balance sheet got all kinds of messed up by the rise of interest rates, which caused depositors to get a little spooked and start withdrawing their money. So everyone knew that customers would probably withdraw some of their money in the wake of SVB, but we really didn't know how much money they were going to withdraw until First Republic's bank's earnings call last week. Turns out it was a lot. It was a lot. customers withdrew more than half of FRC's total deposits, which is not a real sustainable way to run a bank.

So that's when the FDIC started getting a little nervous, started looking over FRC's shoulder, not really liking what they saw. And so then they kind of started knocking on the doors of big banks saying, like, hey, anyone want to buy a bank? And so a lot of the biggest banks, like PNC, Bank of America, basically said, like, I'm good, because First Republic Bank was a little bit of an ugly asset.

It's balance sheet, again, like I said, was a bit of a mess. But early this morning, J.P. Morgan stepped up as the Night and Shining Armour to make sure that the bank didn't go into FDIC receivership for more than a brief moment. So, Neil, what do you make of all this? Banking crisis over? Is it truly the end of an error or not? We can debate whether it's the Night and Shining Armour or just opportunist a little bit later. But I just kind of want to establish that this is bigger failure than SVB.

Yeah. It is the second largest in history after Washington Mutual and the third bank failure in the last. eight weeks, I think. So not great, but if a bank fails, this is kind of how you want it to happen and not what happened to SBB, where they had to protect all of the deposits above $250,000 that were not insured. And to find a buyer that could kind of absorb all of the

deposits that were left. There weren't that many. There were $92 billion in deposits left at First Republic Bank. And for J.P. Morgan, a big bank that is very comfortable financially can come in and say, okay, we'll take all of your deposits. You don't have to worry. about anything. That is a huge relief. And, you know, I don't think markets are really reacting much to the news because of that. Right. It actually was very interesting because first Citizens

Bank is the one who kind of picked up the scraps of SVB and their shares went skyrocketing when they broke the news. They went up 55%. J.P. Morgan's obviously a much, much bigger bank, but their shares are basically like unchanged on this news. They were up a little bit. They were up a little bit, but compared to 55% not much. Yeah, I saw this great quote because obviously there's comparisons here between First Republic Bank and SVB. And I think it was Dan Primack in his Axios newsletter this morning said that SVB was idiosyncratic, but First Republic is systemic. And so those two things, meaning that SVB was probably predicated by social media played this huge, huge role. VCs were kind of inspiring fear. Feelewing the bank.

run. And then First Republic was more just like a systemic reaction to rising interest rates. And so that's why we saw it handled this way, maybe a little less fanfare around it, I guess. And so we're kind of seeing like the domino start falling from SVB. And so that's why this did feel like a much less stressful version of SVB. And it happened overnight on the weekend. Yeah, they got it done before the U.S. markets opened. I wanted them to get it done last night so I could, you know, go to bed at a relatively a good hour, but I finished the newsletter this morning when this came out. But my takeaway here is the rich are getting richer because of the banking crisis or I don't know if it's a crisis, but the turmoil. This is what people expected.

Kind of when all the banks started teetering, they were like, okay, well, all of the big guys are going to come in and absorb all of them. And that's kind of exactly what's happened. You mentioned first citizens collecting the scraps of SBB. Then you had New York Community Bank, snatching up the assets of signature bank. And then UBS absorbed credit suites. Credit Suisse, which was its cross-town rival, and all of these were government brokered and just make the big banks getting much bigger. And J.P. Morgan has done this for centuries. Right. And also, they sweeten the deal, too, which is, I mean, it's to be expected because, again, First Republic Bank was, it had a black mark. It was a black sheep of the industry. But so the

FDIC provided 50 billion in additional financing to J.P. Morgan. And they also have a loss sharing agreement on some of its commercial loans and mortgage loans. So again, not only are the rich getting richer, but they got subsidized in the process to incentivize them to make this deal. J.B. Morgan is the biggest bank in the United States. And it only became that way because in 2008, it bought Washington Mutual, which is the biggest banking failure in U.S. history and Bear Stearns. And so it's through these kind of last-ditch acquisitions that Jamie Diamond has kind of built his empire. And he's defending it being like, I'm being super patriotic. the U.S. has asked me to come in and step up, and I'm doing that.

And then you have the critics who are just like, this guy is such an opportunity. He's coming in and building his bank on the backs of other failed banks. I call it the LV.M.H. of the banking sector now. We're going to wake up in a few years, and J.P. Morgan's going to own every single bank. Yeah. Definitely worried about consolidation. Let's move on. You know the drill.

So every few weeks, another social media app pops up, and the media goes, now this, This could be the one that finally takes down Twitter. This is the hot stuff. There was Mastodon. There was substack notes. And the latest Twitter killer du jour is called Blue Sky. And it seems like everyone on the internet was talking about Blue Sky last week after celebs like AOC, Jirill, and Chrissy Tegan joined the platform.

It's not that big of a switch because Blue Sky was created as a side project of Twitter and was funded by none other than Mr. Blue Sky himself, the Twitter co-founder, Jack Dorsey. So people who live on social media are saying blue sky is a pretty solid alternative that actually feels the most like Twitter and has the same kind of energy. So they're pretty excited. But it's only invite only right now and is in beta mode. So there's just a few thousand people on it. Yeah. It is this thing where we have this outsized echo chamber of the, because the people who are joining it are these very terminally online people, politicians, newsletter writers, journalists.

So we are hearing about Blue Sky because those are the type of people who write about these things. So yeah, it's much smaller in comparison. But yeah, it's big selling point is this idea of it's a decentralized social media platform. So Jack Dorsey originally started it because he wanted to run Twitter on this motor call because his big thing is that you have these silos. Say you have your Facebook friends. You can't take your Facebook profile and port it over to Twitter. And he said that's a ridiculous amount of power that these. these social media platforms have. So we kind of wanted to give you the power to control your

following list, your entire profile, basically. And essentially, if other social media companies started running their companies on this AT protocol, you could just port over your profile to any place. So that's like the general philosophical idea behind it. The comparison is email. Right. That's what they use. They say like Google and Yahoo kind of set up their own rules and hotmail, I guess, or I don't know, Outlook, Microsoft. They set their own rules for their platform, but, you know, I can email you if I'm a Gmail user and you're an Outlook user just fine, and that's sort of the comparison that you can use these, like, decentralized social media networks in a very similar way.

Yeah, and then another cool thing about Blue Sky is it offers algorithmic choice, which is you can customize the algorithm to suit your needs because so many people get so mad at, remember when the Instagram algorithm changed when you, it stopped going chronological. So this gives you the opportunity to tweak your algorithm into a place that you like. Feels a little like choice paralysis. You know what I mean? When people are faced with so many choices, they just want to, you know, they don't want to make their own decisions and something like tweaking my own social media algorithm or porting over my profile from one social media company to the next sounds like so much work more than the average person is going to do. So it feels like

this is for like super internet nerds right now. For sure. And then I truly think the only reason why people join social media networks is because their friends are there. And so that's rule number one. They don't really join for any decentralized protocol or anything like that. And then the reason that they stay on social media networks is because they're entertained when they open the app.

So those two things are still the most important things to nail for Blue Sky. It can do all this pontificating. It can invite all these famous people. But unless it can get you, your friends, and your friend group there, and then also just provide a good experience once you open the app,

I think it might just fade away like every other one. We'll see. Before we go, we got to talk about Jack Dorsey saying it all went south for Musk. Yeah. So he called Musk the singular solution to take over Twitter last year. And then writing on Blue Sky on Friday, he said it all went south and basically bashed Musk and said he should have walked away from the deal. I know. He did his 180.

Poor Jack Dorsey. Can't win. Okay. Let's move on to ChatGBT. It's been a minute since we talked about. chat CBT. So obviously there's always things to talk about when it comes to AI. So let's do a little talking. So we stumbled across a bunch of interesting stories related to Open AI's large language model chat chabit. So here's your roundup of the latest developments. Up first, people are using

chat chabit to help them negotiate raises in the workplace. So the answers that chat chabit are providing to these questions are actually pretty solid. So a career coach kind of took a look at what ChatGBTGBT said when you ask them, hey, I want to raise, what should I do? And so some of the steps it recommends are, one, research industry salaries, two, review your achievements, three, understand your company's financials,

and four, practice. So again, this is not mind-blowing. Mind-blowing stuff, but I just think this is interesting that people are seeing ChatGBTGBT as kind of this voice of authority. They can easily Google this information, but for some reason having this disembodied AI, tell you what to do, it's comforting to people in a way.

Maybe it's because they don't have to sort through all the different links and decide which is verifiable, you know, that you would get on Google and which are verifiable and which are just trash. Yeah. And, you know, chat GPT is the one source of truth. And you ask it a question and it gives you the answer right away and you don't have to go searching for it. Yeah, it's like an advice column in your, in your pocket.

So I can see why it's appealing. And I obviously, I've started to do it sometimes where you just ask it for maybe you, you have a hunch about something, but you just want them to confirm it. And Chachabit is, like, great for doing that. What happens when a ChachyBT negotiates your raise against a boss's Chachyptu. There's some sort of equilibrium that's reached? Yeah, no one, I guess nothing happens, or you're both win. You both win. That's what they should be programmed for. Exactly. All right, Neil, what's up next? All right. I will go into this bedside manner research. So according to new study, chat GPT might be more empathetic than people, which depending on who you talk to on a

daily basis might be surprising or not really that surprising. So these findings have to do with a doctor's bedside manner or how doctors interact with patients. In this study, both human doctors and chat GPT answered medical questions from an online forum and were graded for their empathy and quality of answer by a human panel. Without knowing whether a human or the bot wrote the responses, the panel preferred chat chbt's responses, 79% of the time. And 45% of chat GPD answers were rated empathetic or very empathetic compared with just 5% of doctor's replies. So, yes, it seems a bot was considered far more empathetic than a human doctor. This made a ton of sense to me because doctors are stretched so thin.

You can't physically be empathetic with every single interaction you have with patients. I'm trying to cut doctors some slack here because they're only humans. So it makes sense that a bot with no real burdens of everyday existence are going to be a little bit more polite and a little bit more careful with their wording than like doctors who see hundreds of patients a day. So but it was interesting to see just how big that number was. Like it was overwhelmingly. Yeah, 45 to 5. People prefer. And they question the quality metric too.

And they're saying that this study doesn't mean that chat GPT is going to be your doctor now, but that doctors could use chat CBT to do. draft summaries or, you know, communications to patients that might make them sound a little bit more, less awkward. That is our AI roundup. Of course, we could always talk about it every week, but those are the ones that stood out to us this week. Okay, that's the first half of our show. Before we jump into our next story, we're going to take a quick break. It's time to refresh your yard during spring backyard days at the Home Depot.

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Drew Maggie is an infielder in the Pittsburgh Pirates system, who played 13 years in the minor leagues, toiling away. Right. Minor league baseball is not fun to play in. You don't earn that much. You're traveling a super grueling schedule. You're not making that much. You don't have potential to be, you know, to be a major leaguer oftentimes.

But Maggie got called up to the show last week for the Pittsburgh Pirates, and he recorded his first major league hit on Saturday, which is just cool because the whole crowd got behind him. This whole team got behind him. His parents were there. I think the parents always gets me so emotional. So it was super special. But the clock struck midnight on Maggie Sunderrella's story because he was sent back to the minor league. Oh, that's brutal.

He's probably just not that good. Yeah. Wait, how old is he? I think in mid-30s, up in 30s. You got to love a story like this. It's great. And I mean, we were watching the video of him getting the hit for the first time. It is electric.

Like you can just see, it's a culmination of so many. years of hard work, even if it was just one magical night. I think it's worth it for him. Just receive word he is 33 years old. He's been down there for a long time. There's not that many, you know, 30, mid-30s players in the minor leagues because they're like, I'm done with this. This is terrible. Good for him. That's a good winner. My winner of the weekend is, I think it's been a previous winner of the weekend, but that is Super Mario's Bros. Movie. It's officially the first film of the year to cross the $1 billion milestone at the global box office. So it grows 490 million in North America and 532 million internationally.

Pretty balanced, honestly, across the two. And it joins the one billion pandemic club, which are the movies that have reached the one billion mark since the pandemic begin. And that is Spider-Man, No Way Home, Marvel, Top Gun Maverick, great movie. Jurassic World Dominion, not that great a movie. And then, of course, Avatar, the Way of Water. So honestly, if you kind of look at who this movie appeals to, it makes sense. It's what's known in the movie biz as a four-quadrant blockbuster,

which means it hits male and female and young and old. So Super Mario Bros. It's a juggernaut. It's a juggernaut. I've not seen it. You're by. We're the only two people. I know.

What's also funny is that, so I listed those movies, Chris Pratt is in Jurassic Mountain, and Chris Pratt is also the voice of Mario. the Mario movie. Everyone's saying that there is no movie star these days, that it's kind of Tom Cruise is the last one, but maybe Chris Pratt. There you go. Okay, Neil, I mentioned it at the top of the show,

but we're going to talk about the Met Gala. It is tonight, and I think our invitations must have been lost in the mail because we're not on the guest list. Ridiculous. I'm blaming hair and makeup for that. But the Met is always this big event in the fashion world

where you just have so many famous people, concentrated in one place. So obviously people are going to talk about it's going to make headlines. Is there a designated survivor? Like a designated celebrity survivor. There's so many in one place. Yeah. I wish I...

I think Blake lively isn't going. So she's going to run the celebrity country if someone takes out the Met tonight. There you go. So let's just give a brief rundown of just how big this event is in terms of monetary value.

So tickets to this year's edition will set you back 50 grand with a table coming in at 300,000. So that's actually higher than last year's numbers, which shows inflation hits us all. And so the guest list is curated by Anna Wintor, who is the editor-in-chief of Vogue. She's in charge of throwing this massive fundraiser just to show how much money this brings in.

Last year's edition made $17 million for the MET, raised for the MET. And the other spring gala that the Met throws raised just 2.6 million. So it truly is. She's turned this into this massive event, absolute charitable juggernaut. And it's only exploded because of social media. Like the memes are insane. And tonight when people start coming out in the red carpet, your social media feed,

just a heads up will be absolutely inundated with memes from whatever crazy dress. Right. So there's always a theme. And so some of the themes I honestly remember was camp in many. 16 where Jared Leto came in carrying a version of his own head in his arm just over the top. And then also there was heavenly bodies where Rihanna dressed as the Pope. So there's always this crazy over the top theme. This year's theme is a in memoriam for Carl Lagerfield, who is this controversial designer.

He was at the helm of brands like Fendi, Chloe, Chanel, and just kind of like this absolute juggernaut in the high fashion scene. Yeah. We really... He said some weird things. Yeah, he's definitely a controversial figure. Like, he's been at war against PETA for a long time. This is a really funny anecdote where Pita tried to pie him at a fashion show, which means throwing tofu pies at him.

They actually missed him and actually hit Calvin Klein instead. And they put out a statement saying, like, that was not intentional. He was just friendly fire. So, yeah, Pita, he's had some fat phobic comments, too, where he kind of referred to as Adele as overweight. But his big thing was that his controversial persona was always an act and that he was just doing it to drum up. I'm just pumped for his cat Chupet, who has a nanny and two maids, her own agent, a skincare collab. And Lagerfeld has said in my life, my priority is Chupet and then everything else. So everyone's looking for this cat.

That is the biggest thing, whether this cat, a cat has not walked the red carpet in Met History. That is some good stats right there. A dog did, though, I think last year, a little golden retriever. So this might be the first year we see. We'll see if Chupette shows up. What else to watch this week? Let's get into that to finish off the show. Tonight, there could be a potential writer strike.

So TV and film writers in Hollywood could strike today for the first time in 15 years if they don't agree to a contract with major studios. This is everything to do with how streaming has upended the TV and film biz. And it would take a lot to play out, but it would impact news-oriented TV programs immediately. So, for example, there won't be a late-late show at Jamie. Corden tomorrow. But not this one. We do our own writing here.

So this, we will be at end mornings. Yes. We have a Fed meeting with inflation still ripping. The Federal Reserve is expected to announce its 10th straight interest strike at the conclusion of its meeting on Wednesday. It could pause after this because it's already toppled three banks in the past eight weeks. We have earnings, Apple, Starbucks, Ford, and 160 other S&P 500 companies. So stay tuned for some juicy nugs.

We'll have some for you later this week. So far, so good for most of the companies that have reported earnings. We have a coronation coming up of King Charles III. He'll be the 40th monarch crowned in England since 1066. They love their events. They love their coronations. They love their weddings. It's a big deal over there.

It's going to be a little toned down than the last one in 1953 for Queen Elizabeth the second. But most importantly, they're not stopping Premier League on Saturday. That is huge. That's big for us, yeah. Let's go down. What else this week? May the 4th.

be with you on Thursday. Cinco de Mayo is on Friday. So a lot of cultural appropriation going on then. And then we have Kentucky Derby is on Saturday. Total Bucket List event. And then the sack of the NHL and NBA playoffs were all on this week, Sands Bruins.

What a week. I'm excited. All right. That is our show. Thanks for joining us on this Monday. We'll be here all week. Maybe talking to writers strike tomorrow if they do. You can always reach us at Morningbrewdaily at morningbrew.com.

Let's roll these credits. Thanks to everyone in our control studio. Is that the right word? Control room. Control room. We're in the studio. Our show's producer and editor is Emily Miliron. Our technical director is Euchenna Waugu.

Sam Vela's and Raymond Lou are assistant producers or associate producers. Billy Minino is on audio. Hair and makeup got called in by Chupette for some last minute fur work. Devin Emery is our chief content officer and our show is a production of Morning Brew. Great. Show today, Neil. Let's run it back tomorrow. All.

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