First Republic Bank seized, sold to JPMorgan Chase

The San Francisco-based institution is the third mid-sized bank to fail in two months.

(Jeff Chiu | AP file photo) A sign for a First Republic Bank location is seen Tuesday, April 25, 2023 in San Francisco. Regulators seized troubled First Republic Bank early Monday and sold all of its deposits and most of its assets to JPMorgan Chase Bank in a bid to avert further US banking turmoil

Regulators early Monday seized troubled First Republic Bank, making it the second-largest bankruptcy in US history, and promptly sold all of its deposits and most of its assets to JPMorgan Chase Bank in a bid to stem further US banking turmoil to avert

San Francisco-based First Republic is the third mid-sized bank to fail in two months. The only major bank failure was Washington Mutual, which collapsed at the height of the 2008 financial crisis and was also acquired by JPMorgan.

First Republic has struggled since the collapse of Silicon Valley Bank and Signature Bank in March, and investors and depositors grew concerned it might not survive because of a high volume of uninsured deposits and the risk of low-interest borrowing.

The Federal Deposit Insurance Corporation said early Monday that First Republic Bank’s 84 branches in eight states will reopen as branches of JPMorgan Chase Bank and depositors will have full access to all of their deposits.

Regulators worked late last week and this weekend to find a way forward before US stock markets open. Soliciting bids for First Republic Bank’s assets, they turned again to JPMorgan Chase, the country’s largest bank, known as a dealmaker in times of crisis. Treasury Department officials also recruited JPMorgan last month to spearhead a $30 billion funding package for First Republic.

“Our government invited us and others to get involved, and we did,” said Jamie Dimon, chairman and CEO of JPMorgan Chase.

As of April 13, First Republic had approximately $229 billion in total assets and $104 billion in total deposits, the FDIC said. The FDIC estimated that its deposit insurance fund would lose $13 billion if First Republic were to file for bankruptcy. The Silicon Valley Bank bailout cost the fund a record $20 billion.

Before Silicon Valley Bank collapsed, First Republic had a banking business that was the envy of most of the industry. His clients – mostly the rich and powerful – rarely defaulted on their loans. The bank made much of its money by making cheap loans to the wealthy, which reportedly included Mark Zuckerberg, CEO of Meta Platforms.

First Republic, which is rich in deposits from well-heeled individuals, more than doubled its total assets from $102 billion at the end of the first quarter of 2019, when full-time employment was 4,600.

But the vast majority of his deposits, like those in Silicon Valley and at Signature Bank, were uninsured — that is, above the $250,000 limit set by the FDIC. And that worried analysts and investors. If First Republic were to fail, its depositors might not get all of their money back.

These fears crystallized in the bank’s most recent quarterly results. First Republic said customers rushed to withdraw more than $100 billion in deposits after the collapse of Silicon Valley and Signature Bank. Unlike bankruns throughout history, the First Republic’s decline was fueled by the speed of social media and digital withdrawals, which can be made in seconds from a cell phone.

The San Francisco-based First Republic said the $30 billion in funding it received from a group of big banks in mid-March helped it stem the bleeding. To turn things around, the bank planned to sell unprofitable assets, including the low-interest mortgages it provided to wealthy customers. It also announced plans to lay off up to a quarter of its workforce, which numbered around 7,200 by the end of 2022.

Investors were skeptical, and the devastating earnings report had them racing to exit. First Republic shares fell 75% last week to close at $3.51 on Friday. Any remaining shareholders will likely be wiped out. Shares were trading at $115 on March 8, just before Silicon Valley Bank failed.

The Federal Reserve and the FDIC, which together with the Office of Comptroller of the Currency regulate the banking industry, could again be criticized for their handling of First Republic. Both admitted in separate reports on Friday that lax oversight contributed to the failure of Silicon Valley Bank and Signature Bank.

There could be a sense of déjà vu for Dimon and JPMorgan: in 2008, Dimon was Washington’s banker of choice to find private solutions to this banking crisis, and JPMorgan acquired both Bear Stearns and Washington Mutual.

In a statement, JPMorgan described the deal with the First Republic as beneficial to both the financial system and the company. As part of the agreement, the FDIC will share losses on First Republic’s loans with JPMorgan. JPMorgan expects the addition of First Republic to add $500 million per year to its net income, although it expects to incur $2 billion in costs over the next 18 months to integrate First Republic become. .


Associated Press Staff Writer Matt O’Brien of Providence, Rhode Island contributed to this report.

Justin Scaccy

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