First Republic Bank News: JPMorgan Chase, a major financial institution in the United States, has declared that it will acquire the deposits of the collapsed First Republic Bank, along with a “significant portion” of their assets and specific liabilities. This announcement was made through a press release on Monday.
Earlier that day, the California Department of Financial Protection and Innovation disclosed that First Republic Bank had been shut down and placed under the receivership of the Federal Deposit Insurance Corporation (FDIC), before being bought by JPMorgan Chase.
This is the third instance in the current year that the U.S. government has intervened and taken over a financial institution in the country.
JPMorgan Chase has disclosed that it will acquire nearly $92 billion worth of deposits and a significant majority of the assets of First Republic Bank, which comprises around $173 billion of loans and approximately $30 billion of securities. The acquisition will also include certain liabilities of the failed bank.
As per the bank’s statement, First Republic’s 84 branches will be given a new name and will reopen as usual on Monday.
According to a statement made by JPMorgan Chase CEO Jamie Dimon, the bank’s bid for First Republic Bank was designed in a manner that would minimize the expenses borne by the FDIC’s Deposit Insurance Fund. However, the FDIC has estimated that the cost to the fund will be around $13 billion.
JPMorgan Chase CEO Jamie Dimon has mentioned that the bank, along with others, has stepped up at the invitation of the government. According to him, the acquisition of First Republic Bank will modestly benefit the company, be accretive to shareholders, complement the existing franchise, and further advance the wealth strategy.
First Republic Bank is the largest of the three U.S. banks to have failed this year. In March, federal regulators took measures to protect the customers of Silicon Valley Bank and Signature Bank, citing potential risks to the wider financial system. In an unprecedented move, they insured all deposits at the two banks, even those that exceeded the FDIC’s insurance threshold of $250,000.
While the government protected the bank customers, shareholders were not bailed out and suffered losses as a result of the bank failures.
Following the receivership of Silicon Valley Bank and Signature Bank, the FDIC invited bids to purchase the two lenders. New York Community Bank’s subsidiary bought most of Signature Bank, while Silicon Valley Bank was acquired by First Citizens Bank.
The U.S. Treasury Department is pleased with the resolution, as it has resulted in the least amount of cost to the Deposit Insurance Fund. As per a spokesperson from the Treasury, the banking system is sound and resilient, and Americans should have confidence in the safety of their deposits and the ability of the banking system to fulfill its critical function of providing credit to businesses and families.
While there were no major bank runs, First Republic’s failure stood out as an exception
The failures of Silicon Valley Bank and Signature Bank in quick succession had raised fears of more bank runs. However, recent earnings reports suggest that deposits have mostly stabilized. Jared Shaw, a bank analyst at Wells Fargo Securities, acknowledges that the banks were proactive in reaching out to their customers, explaining their balance sheets and sources of liquidity, which helped alleviate fears of a mass exodus of deposits.
However, First Republic Bank proved to be an exception to this trend. Jared Shaw notes that the deposit pressure on First Republic was more severe than anticipated.
Last week, the shares of First Republic fell sharply
First Republic Bank’s troubles started in earnest last Monday when it disclosed a loss of $100 billion worth of deposits in the first quarter of the year. This triggered such high volatility in the trading of the bank’s shares that the New York Stock Exchange halted trading several times last week. By Friday, the shares had closed at $3.51, marking a decline of over 97% year-to-date.
Founded in 1985 and headquartered in San Francisco, First Republic Bank primarily served affluent customers by providing home mortgages and commercial loans.
After the failures of Silicon Valley Bank and Signature Bank, First Republic Bank faced intense scrutiny. Despite receiving a lifeline in the form of a $30 billion deposit from 11 of the largest banks in the country, led by JPMorgan, the bank was unable to regain the trust of Wall Street. Customers also continued to withdraw their deposits, leading to the bank’s ultimate collapse.
First Republic Exhausted All Options Before Collapse
First Republic tried to find buyers, but with no success, it had to rely on a government-led rescue. The FDIC’s actions come at a time when regulators are being questioned about their role in preventing the failures of Silicon Valley Bank and Signature Bank. Recently, the Federal Reserve and the FDIC released reports that attribute the collapses of those two banks to poor management and admit that more oversight could have been done.