First Republic Bank was placed under receivership by regulators early Monday.
JPMorgan is taking over the failed lender and its deposits for nearly $104 billion.
The bankruptcy of the First Republic Bank is the second largest in US history.
First Republic Bank is acquired by JPMorgan after being seized by regulators. This is the third regional bank to be taken over by federal regulators after consumer panics brought down Silicon Valley Bank in March. It is the second largest bank failure in US history.
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The Federal Deposit Insurance Corporation (a United States deposit insurance fund, abbreviated as FDIC) announced on Mondaythat JPMorgan made a $103.9 billion bid for all of the First Republic’s deposits.
Deposits will continue to be insured by the FDIC, and customers will not need to switch bank accounts to retain their deposit protection up to applicable limits. As part of the transaction, First Republic Bank’s 84 offices in eight states will reopen Monday as JPMorgan branches. The FDIC estimates that the cost of its deposit insurance fund will be approximately $13 billion.
JPMorgan accepts all deposits from First Republic Bank
The takeover follows a week-long struggle by First Republic Bank and its investment banks, led by JPMorgan, to find a solution to keep the bank afloat. But no white knight was found to buy as shares continued to fall and talent fled.
“Our government called on us and others to get involved, and we did,” said Jamie Dimon, chairman and CEO of JPMorgan Chase, am Monday in a statement. “Our financial strength, capabilities and business model have enabled us to develop an offer to complete the transaction in a way that minimizes deposit insurance fund costs.”
JPMorgan will assume all of First Republic Bank’s deposits — including those that are uninsured — as well as most of its assets, the FDIC and JPMorgan said in their statements. However, JPMorgan will not assume First Republic Bank’s corporate debt or preferred stock. First Republic Bank shareholders, whose shares have lost more than 90 percent of their value in recent weeks, can expect to be left empty-handed.
First Republic revealed the extent of its financial woes
Efforts to stabilize the San Francisco bank began after California regulators closed neighboring Silicon Valley Bank on March 10 after scores of customers withdrew their funds. Two days later, New York State regulators did the same to Signature Bank.
On the same day, JPMorgan partnered with the Federal Reserve to offer $70 billion in financing to the First Republic, its longtime client. However, First Republic shares continued to fall, prompting a banking consortium led by JPMorgan to invest $30 billion in the bank on March 16.
The cash inflow helped stabilize the bank — until this week, when First Republic revealed the extent of its financial woes in a report of its first-quarter results. The bank said deposits fell 41 percent to $104.5 billion in the first three months of 2023 and that it is taking steps to shore up its balance sheet, including rundowns of executive jobs and salaries. She also said she is reviewing her strategic options, which in industry jargon means a sale or a spin-off.
The bank made many interest-free loans
According to the Financial Times First Republic has hired its longtime banking partner JPMorgan as well as Lazard and consulting giant McKinsey to find a solution. CNBC Ocean First Republic bankers have asked the big banks to buy their loans at a higher price as they face an estimated $30 billion in fees charged by the FDIC for the regional bank’s collapse levied to cover the uninsured deposits.
During the pandemic, the First Republic has accumulated a large inventory of loans that would have to be sold at deep discounts to raise cash today. Bloomberg Sea the bank offered interest-free mortgages to rich people in which the borrower did not have to repay the loan for the first ten years of the loan’s term.
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In 2020 and 2021, according to Bloomberg’s analysis, the bank made almost $20 billion in interest-free loans in San Francisco, Los Angeles and New York alone. The newspaper quotes a Goldman Sachs executive who took out a $11.2 million mortgage with First Republic that hasn’t had to be repaid for 10 years and has an interest rate below three percent. While such loans are expected to be paid off, selling them to raise cash to cover deposit outflows would incur significant losses.
This article was translated from English by Victoria Niemsch. You can find the original here.