A security guard stands inside a First Republic Bank in Chinatown, Manhattan, March 16, 2023. (AP Photo/Mary Altaffer, File)
The biggest U.S. bank just got bigger after the U.S. government announced early Monday that federal regulators had seized failed lender First Republic Bank after private rescue efforts failed and sold all its deposits and most of its assets to JPMorgan Chase & Co.
The San Francisco-based bank was closed Monday by the California Department of Financial Protection and Innovation, which appointed the Federal Deposit Insurance Corporation (FDIC) as receiver, according to an FDIC press release.
The FDIC said it made a purchase and assumption agreement with JPMorgan Chase Bank, National Association, Columbus, Ohio, to protect depositors. The government agency had to lend JPMorgan $50 billion to buy the bank and said it estimates the FDIC will cover $13 billion in losses, but “final cost will be determined when the FDIC terminates the receivership.”
During the March banking crisis and run on regional and mid-size lenders, First Republic Bank customers, fearing that their bank would be the next to go, pulled out more than $100 billion in deposits. The bank run led to the collapse of Silicon Valley Bank and Signature Bank.
JP Morgan said in a press release the acquisition of First Republic will generate a one-time gain of $2.6 billion and it expects $500 million in profit per year from the acquisition. It is absorbing $173 billion worth of First Republic loans, $92 billion of deposits, $30 billion in securities and $30 billion of large bank deposits “which will be repaid post-close or eliminated in consolidation.”
However, JPMorgan is not assuming any corporate debt or preferred stock, indicating those investors would get wiped out, Axios reported.
San Francisco-based First Republic hoped to stop the bleeding after a group of large banks, including JP Morgan, deposited $30 billion in uninsured deposits. It wasn’t enough. First Republic became the fourth regional lender to collapse since early March and the second-biggest bank failure in U.S. history.
“Hopefully this helps stabilize everything,” JPMorgan CEO Jamie Dimon said Monday on a call with journalists, according to Bloomberg. Regional banks reporting first-quarter results in recent weeks “actually had some pretty good results,” Dimon said. “The American banking system is extraordinarily sound.”
In addition to JPMorgan, PNC and other banks bid on Sunday to the FDIC to buy the bank in “a highly competitive bidding process,” the FDIC said in a statement.
Not everyone is buying that.
“It’s clear that all the ‘bids’ for First Republic Bank were never really real,” according to a tweet from The Kobeissi Letter, an industry commentator on global capital markets. “First Republic tried to sell itself for weeks, no one offered … Multiple ‘bidders’ were said to be in the process, but the FDIC had to seize First Republic. Finally, the FDIC agreed to cover $13 billion in losses and loan JP Morgan $50 billion to buy it. This wasn’t an auction, the FDIC had to break rules and compensate JP Morgan to ‘save’ the system.”
First Republic Bank’s 84 offices in eight states will reopen as branches of JPMorgan Chase Bank, National Association, today during normal business hours, the FDIC said. All depositors of First Republic Bank will become depositors of JPMorgan Chase Bank, National Association, and will have full access to all of their deposits.
It’s uncertain “whether this move ultimately succeeds in containing weeks of uncertainty that’s ricocheted across the U.S. financial system, especially with the Federal Reserve expected to raise interest rates yet again this week,” Kia Kokalitcheva and Dan Primack wrote for Axios.
