JPMorgan takes over First Republic after it is seized by California’s financial regulator

  • JPMorgan acquired all of First Republic’s deposits and a “substantial majority of assets.” Shares rose 2.6% in pre-market trading on the news.
  • It came after California’s financial regulator seized First Republic, resulting in the third failure of a US bank since March.
  • First Republic set off a new wave of concern last month with its disclosure that it lost more deposits in the first quarter than originally feared.

A view of the First Republic Bank logo at the Park Avenue location, in New York City, on March 10, 2023.

David Dee Delgado | Reuters

California’s financial regulator seized First Republic on Monday, resulting in the third failure of a US bank since March, after a last-ditch effort to persuade rival lenders to keep the ailing bank afloat failed.

JPMorgan Chase bought all of First Republic’s deposits, including uninsured deposits, and a “substantial majority of assets,” according to a release. JPMorgan’s shares rose 2.6% in premarket trading on the news.

The California Department of Financial Protection and Innovation said it had seized the bank and appointed the Federal Deposit Insurance Corporation as receiver. The FDIC accepted JPMorgan’s bid for the bank’s assets.

“As part of the transaction, 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 in a statement.

“All First Republic Bank depositors will become JPMorgan Chase Bank, National Association depositors and will have full access to all their deposits.”

Jamie Dimon, chairman and CEO of JPMorgan, said the takeover minimized costs for the Deposit Insurance Fund.

“Our government invited us and others to step up and we did,” he said in a statement. “This acquisition is modestly beneficial to our company overall, accretive to shareholders, helps further advance our wealth strategy and is complementary to our existing franchise.”

Since the sudden collapse of Silicon Valley Bank in March, attention has focused on First Republic as the weakest link in the US banking system. Like SVB, which catered to the tech startup community, First Republic was also a California-based specialty lender. It focused on serving wealthy coastal Americans, luring them with low-interest loans in exchange for leaving money in the bank.

But that model unraveled in the wake of the SVB collapse, when First Republic customers withdrew more than $100 billion in deposits, the bank revealed in its April 24 earnings report. Institutions with a high proportion of uninsured deposits such as SVB and First Republic found themselves vulnerable because customers feared losing their savings in a bank run.

Shares in First Republic are down 97% so far this year as of Friday’s close.

This deposit drain forced First Republic to borrow heavily from Federal Reserve facilities to maintain operations, squeezing the company’s margins because funding costs are far higher now. First Republic accounted for 72% of all loans from the Fed’s recent discount window, according to BCA Research chief strategist Doug Peta.

On April 24, First Republic CEO Michael Roffler attempted to portray an image of stability following the events of March. Deposit outflows have slowed in recent weeks, he said. But the stock fell after the company rejected its earlier financial guidance and Roffler chose not to answer questions after an unusually brief conference call.

The bank’s advisers had hoped to persuade the biggest US banks to help First Republic again. A version of the plan recently circulated involved asking banks to pay above-market rates for bonds on First Republic’s balance sheet, which would enable it to raise capital from other sources.

But eventually the banks, which had joined forces in March to inject $30 billion in deposits into First Republic, couldn’t agree on the bailout plan and regulators took action, ending the bank’s 38-year run.

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