Hard on the heels of Signature Bank, Silvergate, and Silicon Valley Bank collapse, First Republic Bank had been glissading into a vexatious impasse. The California Financial Regulator has hemmed in on a deal evincing banking giant JPMorgan Chase’s First Republic acquisition. In mid-April, First Republic maintained total assets of $229.1 billion and deposits worth $103.9 billion, according to the FDIC.
Crypto-focused Silvergate shuttered and liquidated posthaste the kenspeckle FTX collapse. The Federal Reserve was forced to step in to stabilize the market after Silicon Valley Bank and Signature Bank failed in the midst of a bank run. Cryptocurrency Bitcoin’s recent surge was linked to First Republic Bank’s crash.
The California Department of Financial Protection (DFPI) took possession of First Republic and appointed the US FDIC (Federal Deposit Insurance Corporation) as the receiver. In a statement, the FDIC estimated the cost to the Deposit Insurance Fund as $13 billion.
“Deposits are federally insured by the FDIC subject to applicable limits.”
The JP Morgan-First Republic acquisition is a consequence of the deteriorating rescues and private-sector’s failed attempts at salvaging any deal.
First Republic Bank Sale Auction: JPMorgan Acquires First Republic Bank
First Republic Bank focused on wealthier customers, analogous to Silicon Valley Bank’s backbone on venture capital firms. With 80 offices in seven states with nearly 7,200 employees at the end of 2022, First Republic wangled as the 14th largest US bank by July 2000.
First Republic Bank’s shares had nosedived 36 percent in premarket trading while plunging up to 54 percent when speculations of being seized by the US banking regulator solidified. The bank’s stock has tumbled 97 percent of its value this year. JPMorgan Chase’s stock performance jumped 2.6 percent.
The rising inflation woes, triggering risks of losses, recession fears, and rapid interest rate hikes mounted up the pickle for businesses which needed to pay back loans.
While many banks earlier were disinclined to rescue the troubled regional lender, 11 banks injected $30 billion into First Republic Bank in March as an interim fix. These banks included Citigroup, Bank of America, Wells Fargo, Goldman Sachs, JPMorgan Chase & Co., and Morgan Stanley.
First Republic started struggling amidst constant withdrawals of deposits, against the backdrop of the deeper crisis of SVB collapse. Other banks came forward, interestingly, to make First Republic Bank’s sale auctions.
The interested bank buyers included PNC Financial Services Group, Citizens Financial Group, and JPMorgan Chase, which submitted final bids in the auction which was run by US regulators. The FDIC was seeking a proposed price through the indications of interest.
JPMorgan – First Republic Bank Acquisition
JPMorgan will be assuming all deposits including all uninsured deposits and all assets of First Republic Bank – $173 billion of loans, $30 billion of securities, and $92 billion of deposits. The Wall Street banking behemoth will not assume First Republic’s corporate debt and preferred stock.
“Our financial strength, business model and capabilities have allowed us to develop a bid for executing a transaction to minimize costs to the Deposit Insurance Fund.”
– CEO Jamie Dimon, JPMorgan Chase
The First Republic-JPMorgan acquisition expects to realize a one-time post-tax gain of $2.6 billion after the deal but did not reflect the $2 billion of post-tax restructuring costs over the next 18 months.
On an acquisition spree since 2021, the biggest lender in the US, JPMorgan Chase has acquired more than $5 billion worth of deals across 30 companies. In recent years, while the US regulators have slowed down in approving large bank deals, the restrictions would have averted a superfluous deposit base in JPMorgan’s size. But this stands as an exception.
After JPMorgan buys First Republic, the bank would be “well-capitalized”, whilst maintaining healthy liquidity buffers and a common equity tier one ratio, consistent with its 2024 Q1 target of 13.5 percent.
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