First Republic Bank has been seized, according to American regulators, and an agreement has been reached to sell the bank to JPMorgan Chase & Co. This makes it the third significant American institution to fail in the past two months. According to a statement from JPMorgan, the banking behemoth would accept $173 billion in loans and around $30 billion in securities from First Republic Bank, including $92 billion in deposits. It does not take on the corporate debt or preferred shares of the bank.
Shares of First Republic Bank fell 36% in premarket trading
Shares of First Republic Bank fell 36% in premarket trading. This year, the stock has lost 97% of its value. While S&P 500 futures were trading unchanged, JP Morgan shares increased by 2.6%. According to people familiar with the situation over the weekend, JPMorgan was one of many prospective purchasers, along with PNC Financial Services Group (PNC.N) and Citizens Financial Group Inc. (CFG.N), that filed final offers on Sunday in an auction being held by American regulators. The Federal Deposit Insurance Corporation (FDIC) will serve as First Republic’s receiver, the California Department of Financial Protection and Innovation stated early on Monday.
The cost to the Deposit Insurance Fund, according to the FDIC’s assessment, would be close to $13 billion. When the FDIC ends the receivership, the final price will be known. Less than two months ago, the Federal Reserve was forced to intervene with emergency measures to stabilize the markets after Silicon Valley Bank and Signature Bank failed due to a deposit flight from American lenders. Those failures followed the voluntary liquidation of cryptocurrency-focused Silvergate.
Since 2021, JPMorgan has acquired more than 30 businesses in transactions totaling more than $5 billion
“Our government invited us and others to step up, and we did,” said Jamie Dimon, Chairman and CEO of JPMorgan Chase. “Our financial strength, capabilities, and business model allowed us to develop a bid to execute the transaction in a way to minimize costs to the Deposit Insurance Fund.” JPMorgan said it expected to achieve a one-time, post-tax gain of approximately $2.6 billion after the deal which did not reflect an estimated $2 billion dollars of post-tax restructuring costs likely over the next 18 months.
With a common equity tier one (CET1) ratio in line with its first quarter 2024 target of 13.5%, it was stated that the bank would be “very well-capitalized” and maintain solid liquidity buffers. The 84 locations in eight states of the defunct bank will reopen as JPMorgan Chase Bank branches starting on Monday, the bank announced. Since 2021, JPMorgan has acquired more than 30 businesses in transactions totaling more than $5 billion. U.S. regulators have been reluctant to approve significant bank mergers in recent years. Anti-competitive behavior has also come under heavy scrutiny under the Biden administration.