First Republic's failure 'totally predictable,' says Apollo CEO Rowan

First Republic's whirlwind decline came to a close early Monday morning, with the announcement that JPMorgan would acquire the beleaguered regional bank. The deal is not surprising to Apollo Global Management Co-Founder and CEO Marc Rowan, who called it a simple case of the "strong get stronger." The recent failures of three banks (First Republic, Signature, and Silicon Valley) were "totally predictable," Rowan says, and can be traced to "well-known" weaknesses. Rowan is more focused on what the "future of regional banking" looks like, particularly after the largest bank run in history saw Silicon Valley bank lose $42 billion in deposits in a single day.

So, what does that future look like? There's a possibility of more mergers with regional banks, Rowan says, as weaker institutions "get taken out by the strong players," but "we're not going to know for a while." Most important in the regional bank business model is whether their deposits are stable, Rowan says, admitting he's "not so sure."

JPMorgan (JPM) CEO Jamie Dimon told analysts on a call the market crisis surrounding banks "is over." But that doesn't mean the market is out of the woods quite yet. Rowan is wary of commercial real estate stress that could "give some rise to round two." And with the Fed expected to hike rates higher this week, economic conditions are only tightening in the foreseeable future.

In his full interview with Brian Sozzi, Marc Rowan explains why despite turmoil, the U.S. banking system remains the "envy of the world."

Key video moments:

00:00:26 Bank failures were "totally predictable"

00:00:53 Regional banks' cost of doing business is up

00:01:30 Weak players are getting taken out by strong players

00:01:40 Watch out for commercial real estate

Disclosure: Apollo Global Management is the parent company of Yahoo Finance.

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BRIAN SOZZI: Lots to talk about on the future of Apollo. But we have to start with what we saw this morning-- JPMorgan scooping up a First Republic. Your thoughts on this deal.

MARC ROWAN: The strong get stronger. I mean, JPMorgan has run a conservative balance sheet. They run a fortress balance sheet. In times of stress, they benefit. It's no more complicated than that.

But I do think that this is not a huge story. I know it's this morning so we'll talk about it. But the three banks that have failed, totally predictable. Mark to-- market losses on treasuries, well-known. Structure of the deposit base, well-known.

To me, the interesting question is, what is the future of regional banking going forward when $42 billion of deposits can leave in four hours? Not, did JPMorgan buy or not?

BRIAN SOZZI: What is that future?

MARC ROWAN: I think it's going to be interesting. I think we're not going to know for a while. But I look at the business model, they have always paid more for their deposits versus the money center banks. Now, cost of deposits are up. They're going to have more regulatory costs, whether there's more regulation or not. Their cost of debt, their cost of equity is up.

But most importantly, are deposits stable? Are they sticky funding? Can they run a loan book, a Nim, or spread-based business? I'm not so sure. So when the dust settles, I think there will be a real shakeout as to what the business is of regional banking going forward.

BRIAN SOZZI: Do you see more mergers in regional banking happening?

MARC ROWAN: I think that's a possibility, and there will be some. Certainly, we're watching the weak players get taken out now by the strong players. I think as Jamie said this morning, it's probably the end. But I would say the end of round one. I think we still have a lot of commercial real estate stress in the system, which probably will give rise to some round two.