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

  • JPMorgan acquired all of First Republic’s deposits and a “substantial majority of the assets.” Its shares rose 2.6% in premarket trading after the news.
  • It comes after California’s financial regulator took over First Republic, leading to the third failure of a US bank since March.
  • First Republic sparked a new wave of concern last month with its revelation that it lost more deposits in the first quarter than initially feared.

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

David Di Delgado | Reuters

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

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

The California Department of Financial Protection and Innovation said it took possession of 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 depositors of First Republic Bank will become depositors of JPMorgan Chase Bank, National Association, and will have full access to all their deposits.”

Jamie Dimon, JPMorgan’s chairman and chief executive, said the acquisition 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 somewhat beneficial to our company as a whole, it is accretive to shareholders, helps further our wealth strategy and is complementary to our existing franchise.”

After the sudden collapse of Silicon Valley Bank in March, attention focused on First Republic as the weakest link in the US banking system. Like SVB, which served the tech startup community, First Republic was also something of a specialty lender in California. It focused on catering to wealthy coastal Americans, luring them with low-interest mortgages in exchange for leaving cash in the bank.

But that model fell apart after SVB collapsed as First Republic customers withdrew more than $100 billion in deposits, the bank revealed in its April 24 earnings report. Institutions with a large share of uninsured deposits, such as SVB and First Republic, found themselves vulnerable because customers feared losing their bank savings.

First Republic shares were down 97% so far this year as of Friday’s close.

This drain on deposits has forced First Republic to borrow heavily from Federal Reserve facilities to keep it afloat, putting pressure on the company’s margins as funding costs are now much higher. According to BCA Research chief strategist Doug Peta, First Republic accounted for 72% of all loans from the Fed’s recent discount window.

On April 24, First Republic CEO Michael Roffler tried to present an image of stability after the events of March. Deposit outflows have slowed in recent weeks, he said. But shares fell after the company backtracked on its previous financial guidance and Roffler opted not to take questions after an unusually brief conference call.

The bank’s advisers hoped to convince the biggest US banks to help First Republic again. One version of the plan recently floated involves asking banks to pay above-market interest rates for bonds on First Republic’s balance sheet, which would allow it to raise capital from other sources.

But ultimately the banks, which came together in March to inject $30 billion in deposits into the First Republic, could not agree on a rescue plan and regulators took action, ending the bank’s 38-year run.

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