First Republic Bank acquired by the FDIC and sold to JPMorgan

Bank of the First Republic has been picked up by federal regulators and will be sold to JPMorgan – making it the third major bank to fail in less than two months.

The Federal Deposit Insurance Corporation (FDIC) simultaneously announced Monday morning that it had seized the bank and that JPMorgan Chase, America’s largest bank, would buy substantially all of the bank’s assets and deposits.

With total assets of $229.1 billion at the time of the shutdown, First Republic Bank eclipsed Silicon Valley Bank ($209.0 billion at the time of the shutdown) to become the second-largest bank failure in the world. American history.

The intervention comes days after First Republic announced that it lost around 40% of its deposits in the first quarter of this year. Amid rising interest rates and after the failures of Silicon Valley Bank and Signature Bank earlier this year, a growing cohort of depositors sought to transfer their money to banks deemed safer and offering more attractive returns.

Among midsize banks, First Republic has been hardest hit by the trend: in mid-March, about 70% of its deposits were uninsured, according to Bank of America, meaning they were more than the FDIC guaranteed limit of $250,000.

This compares to a median of 55% uninsured deposits for mid-sized banks and the third highest level after SVB and Signature Bank.

Despite a $30 billion infusion from 11 peer banks in mid-March, First Republic couldn’t stop the bleeding: its stock has fallen more than 75% in the past 30 days.

The extent of the San Francisco-based lender’s deposit losses an outlier compared to other regional bankswhich saw a roughly 5% drop in deposits on average in 2023, according to Goldman Sachs Economic Research.

Still, the rapid flight of First Republic deposits had “created a lot of anxiety in the industry”, said Tim Coffey, chief executive of Janney Montgomery Scott, a financial services group.

In addition to uninsured deposits, First Republic also carried many long-term fixed interest rate loans that began to decline in value as the Federal Reserve repeatedly raised its benchmark rate.

First Republic said in a press release last week that it was seeking help to reshape its balance sheet after the massive deposit flight.

On Friday evening, the bank said: “We are engaged in discussions with multiple parties about our strategic options while continuing to serve our customers.”

CNBC’s David Faber reported On Tuesday, the First Republic was looking to sell assets to larger banks while raising additional equity, but it was unclear whether other banks would be willing to buy. Bloomberg News reported on Tuesday this First Republic sought to sell up to $100 billion in loans and securities to restructure its balance sheet.

The lender had already ruled out a full sale to another bank, Faber reported.

On Friday afternoon, Reuters reported that an FDIC seizure was imminent after hopes of finding a solution in the private sector failed.

Over the weekend, the government moved to accept offers for First Republic, as the FDIC hoped to announce the company’s closure alongside a purchase agreement.

JPMorgan Chase was the winner.

“Our government called on us and others to step in, and we did,” JPMorgan Chase CEO Jamie Dimon said in a statement Monday morning. “Our financial strength, capabilities and business model allowed us to develop an offer to execute the transaction in a manner that minimized costs to the Deposit Insurance Fund.”

First Republic’s 84 branches in eight states will reopen as branches of JPMorgan Chase on Monday.

The FDIC estimates the cost of taking First Republic into receivership will be about $13 billion, less than the $20 billion it estimated as the cost of the Silicon Valley Bank bankruptcy.

Jesse Pound, CNBC, David Faber, CNBC, Reuters And Associated press contributed.

Leave a Comment