- M&A
- May 1, 2023
- 4 minutes read
Regulators Seize First Republic Bank, Sell Assets To JPMorgan
We’ve witnessed the third failure of a major American bank within two months. Californian regulators have seized First Republic (NYSE:…
We’ve witnessed the third failure of a major American bank within two months. Californian regulators have seized First Republic (NYSE: FRC), a bank with over $100bn in deposits, and will sell its assets to JPMorgan Chase (NYSE: JPM), America’s largest bank.
- The California Department of Financial Protection and Innovation shut down First Republic on Monday. It held an auction for the shuttered bank’s assets, and JPMorgan Chase emerged as the winning bidder. All First Republic depositors will become depositors of JPMorgan and have full access to their deposits, the agency said. All First Republic branches will also reopen as JPMorgan branches starting on Monday.
- First Republic had $104bn in deposits and $229bn in assets as of April, marking the second-largest bank failure in America. The top position remains Washington Mutual, which collapsed in 2008 with $188bn in deposits and $307bn in assets and was co-incidentally also taken over by JPMorgan.
First Republic’s collapse wasn’t sudden. In March, the bank began showing signs of distress shortly after the failure of Silicon Valley Bank, another California-based bank. In its earnings report dated April 24, First Republic revealed that clients withdrew over $100bn in deposits in this year’s first quarter; the bank primarily caters to rich clients with deposits above the government-insured $250k limit.
The unprecedented deposit outflows caused First Republic to borrow heavily from Federal Reserve facilities to stay afloat. A group of large banks, including JPMorgan, also deposited $30bn in First Republic to shore up the bank’s balance sheet. It turns out these rescue packages were not enough to hold it out.
- As part of the purchase agreement, the U.S. Federal Deposit Insurance Commission (FDIC) will share losses with JPMorgan on mortgages held by First Republic. The FDIC estimates a cost of $13bn to its insurance fund, which is funded by member banks. Equity investors in First Republic are getting wiped out.
- Notably, three of the four largest U.S. bank failures have happened in the past two months; First Republic, Silicon Valley Bank, and Signature Bank, a crypto-focused bank, respectively.
JPMorgan Chase will emerge from this saga much stronger; it had $3.7 trillion in assets as of March and will add more by taking over First Republic. It’s the most profitable U.S. bank, with a $37bn net profit on $132bn in revenue in 2022.
