Regulators seize First Republic Bank, sell assets to JPMorgan

May 1 (Reuters) – Regulators seized First Republic Bank ( FRC.N ) and sold its assets to JPMorgan Chase & Co ( JPM.N ) on Monday, in a deal to resolve the biggest U.S. bank failure since the 2008 financial crisis and draw a line during a prolonged bank uro.

First Republic was among regional US lenders hardest hit by a crisis of confidence in the banking sector in March, when depositors fled in droves from smaller banks to giants such as JPMorgan as they panicked over the collapse of two other mid-sized US banks.

The bank had limped since then, but investors fled again last week when it disclosed more than $100 billion in outflows in the first quarter and a plan to explore new options.

Barely a week later, California regulators on Monday seized First Republic and placed it in FDIC receivership alongside the sale of its assets, marking the third major U.S. bank failure in two months and the largest since Washington Mutual in 2008.

Shares of JPMorgan rose 2% on Monday, while shares of mid-tier banks fell and the KBW Regional Banking Index (.KRX) closed down 2.7%. First Republic shareholders will be wiped out in the transaction, Wedbush analysts said. The bank’s shares fell 43.3% in premarket trading on Monday before being halted.

JPMorgan will pay $10.6 billion to the US Federal Deposit Insurance Corp (FDIC) as part of the deal to take control of most of the San Francisco-based bank’s assets and gain access to First Republic’s coveted affluent customer base.

“Our government invited us and others to step up, and we did,” said Jamie Dimon, chairman and chief executive of JPMorgan, which had also been a key player in the 2008 financial crisis and bought Bear Stearns in a weekend bailout.

The deal will cost the FDIC’s Deposit Insurance Fund about $13 billion, according to the regulator’s first estimate.

US President Joe Biden on Monday praised the deal for protecting depositors without making taxpayers foot the bill. He repeated his call for stronger banking regulation and supervision.

“These actions are going to make sure that the banking system is safe and sound,” Biden told a White House event. “Critically, the taxpayers are not the ones on the hook.”

The White House praised “decisive” actions taken by regulators to protect depositors and keep the banking system stable. White House press secretary Karine Jean-Pierre said the actions would also ensure First Republic, which she said was “severely mismanaged,” would be held accountable.

TOO BIG TO FAIL?

Analysts and industry executives said the deal — struck over the weekend after the FDIC ran an auction process that saw several other banks bid — should calm markets. But they added that it came at a cost: the biggest banks became stronger while it became harder for smaller banks to do business.

[1/3] People walk past a First Republic Bank branch in San Francisco, California, U.S. April 28, 2023. REUTERS/Loren Elliott/File Photo

Dennis Kelleher, managing director of the Wall Street reform group Better Markets, said the auction’s outcome showed “unhealthy consolidation, unfair competition, a dangerous rise in too-big-to-fail banks — all while hurting community banks, small business lending and economic growth.”

JPMorgan already has more than 10% of the country’s total bank deposits. Wells Fargo said in a research note that JPM’s net deposits would increase 3% as a result of the deal.

“We need big, successful banks in the biggest economy in the world,” Dimon told reporters on a conference call. “We have the capabilities to serve our clients, which could be cities, schools, hospitals, governments. We bank the IMF, the World Bank. And anyone who thinks the US shouldn’t have it, can call me directly.”

Jane Fraser, chief executive of rival Citigroup, hailed the deal as addressing the last major source of uncertainty for the sector after a period of turmoil.

“Let’s not tarnish every regional and small bank that has a huge problem,” Fraser told a conference.

“This is not the world’s financial crisis, this is not the savings and loan crisis. There will be stress, but let’s be targeted where it is.”

INCREASING PRICES

Global banking has been rocked by the closure of Silicon Valley Bank and Signature Bank in March, as deposit flight from U.S. lenders forced the Fed to step in with emergency measures to stabilize markets while Switzerland’s Credit Suisse ( CSGN.S ) had to be bailed out by rival UBS ( UBSG .S). These failures came after crypto-focused Silvergate voluntarily liquidated.

Some blamed the main cause of the crisis in the banking sector on years of ultra-loose monetary policy followed by an abrupt reversal and rapid rate hikes by the US Federal Reserve over the past year.

“When it was just SVB, it was easy to blame management. But now that we see the pattern, it’s clear that the Fed has moved too far, too fast, and is breaking things,” said Thomas J. Hayes, Chairman and Managing Member , Great Hill Capital.

JPMorgan was one of several interested buyers, including PNC Financial Services Group ( PNC.N ) and Citizens Financial Group Inc ( CFG.N ), which submitted final bids on Sunday in an auction by U.S. regulators, sources familiar with the matter said the case.

JPMorgan has taken over all of the bank’s deposits, it said, and will repay $25 billion of the $30 billion banks deposited with First Republic in March to help shore it up.

The failed bank’s 84 offices in eight states will reopen as branches of JPMorgan Chase Bank starting Monday, it added.

Reporting by Saeed Azhar, Nupur Anand and Tatiana Bautzer in New York; Editing by Stephen Coates and Kirsten Donovan

Our standards: Thomson Reuters Trust Principles.