The regulator took control of First Republic Bank on Monday, selling it to JPMorgan Chase.
The First Republic, whose assets have been hit by rising interest rates after two other lenders collapsed last month, stunning depositors and investors, was struggling to survive.
First Republic was acquired by the Federal Deposit Insurance Corporation and was soon sold to JP Morgan. The deal was announced hours before U.S. markets opened and came after a weekend of scrambles by officials.
Later Monday, 84 First Republic branches in eight states will reopen as JP Morgan branches.
In a statement, the FDIC said JPMorgan “will underwrite all of First Republic Bank’s deposits and substantially all of its assets.” Regulators estimate that the insurance fund will have to pay out about $13 billion to cover First Republic’s losses.
“Our government called on us and others to step up, and we did,” JPMorgan CEO Jamie Dimon said. He said the deal is aimed at “minimizing the cost of the deposit insurance fund.”
The acquisition could make JP Morgan, already the nation’s largest bank, even bigger and subject it to political scrutiny from progressive Democrats in Washington.
First Republic went bankrupt in March despite receiving a $30 billion lifeline from 11 of the country’s largest banks. It will go down in history as her second-largest bank in the United States by assets, after Washington Mutual, which collapsed in the 2008 financial crisis.
The government’s acquisition and sale of First Republic came seven weeks after the government took control of Silicon Valley Bank and Signature Bank. These bank failures shocked the industry and raised concerns that other local banks were at risk of similar deposit collections.
Many banking experts say First Republic’s woes were a delayed response to the turmoil of March, rather than the beginning of a new phase of the crisis. Investors and industry executives are optimistic that no other medium or large lenders are at risk of imminent bankruptcy. Other bank stocks were little moved as First Republic’s share price plunged again last week.
Still, the US financial system has many problems. Recent bank failures and rising interest rates have forced banks to curb lending, making it more difficult for businesses to expand and individuals to buy homes and cars. This is one reason why the economy has slowed in recent months.
A $30 billion cash injection helped allay widespread fears about the banking system, but it did nothing to allay concerns about the viability of the First Republic. Founded in 1985, Lender was the 14th largest bank in the United States earlier this year. lost.
The end of First Republic came after weeks of attempts by banks and their advisers to either save the bank or find a non-government buyout buyer. It was reluctant to buy that bank or part of it without assurance that it wouldn’t. It became clear that there was no other option than a government takeover.
Late last week, the FDIC contacted other financial institutions, including JPMorgan Chase, PNC Financial Services and Bank of America, seeking bids for First Republic. Bidders had to submit their offers by noon on Sunday. As part of the bidding process, banks were also asked which parts of the bank they would not accept.
Like two other failed banks, Silicon Valley Bank and Signature, the First Republic lost billions of dollars in loans as the Federal Reserve rapidly raised interest rates to fight inflation. and collapsed under the weight of investments. When it began to become apparent that these assets had fallen significantly in value, First Republic’s wealthy clients, mostly living in coastal areas, began withdrawing their funds as soon as possible, and investors sold their shares. bottom.
Last Monday, First Republic revealed that customers withdrew $102 billion in deposits in the first three months of the year. That’s well over half of his $176 billion he had at the end of 2022. And government-backed lending groups have effectively admitted they had to rely on the financial industry’s lender of last resort to keep the door open.
The bank’s grim financial statements only fueled investors’ worst fears that the Federal Deposit Insurance Corporation would have to take over the bank.
By Thursday night, the First Republic and its advisers realized they had no choice but to take over the government. The FDIC worked with financial adviser Guggenheim Partners on the process, according to three people familiar with the matter.
Federal regulators are in defensive mode. Last week, the Fed and his FDIC issued a report criticizing themselves for failing to properly regulate Silicon Valley banks and signatures. The report also accused banks of poor management and excessive risk-taking.
First Republic had many clients in the startup industry (similar to Silicon Valley Bank) and in the financial industry, including senior bankers and hedge fund managers. Many of those accounts held more than his $250,000, the federal deposit insurance limit.
The collapse of the First Republic could fuel concerns about an economic slowdown. Industry experts and economists say the chaos sparked by the failure of the Silicon Valley bank has made banks and investors more cautious. This can make financing more difficult and costly, hindering business expansion and hiring. The Fed may slow or pause rate hikes in the wake of the First Republic foreclosure and its ensuing aftermath, as the failure could further tighten bank lending. If you think it will be
Because of the types of customers they serve (mostly billionaires), bank executives often talk about the security of their business model and its growth. Although its customer base had little history of defaults, the bank underwrote mortgages when interest rates were very low and kept them on the books rather than selling them to investors. Massive mortgages have lost value over the past year as mortgage rates for new loans have risen.
Other regional lenders, such as Utah’s Zions Bank and Los Angeles’ PacWest, have gained a foothold earlier than First Republic, and bank analysts don’t think another collapse is imminent. Shares of all other banks in the S&P 500 stock index rose on Friday, but First Republic shares fell more than 40% in anticipation of a government takeover.
Rob Copeland contributed to the report.
