Global Courant 2023-05-01 17:42:44
A worker cleans the outside of a First Republic couch on April 26, 2023 in San Francisco, California.
Justin Sullivan | Getty Images
Regulators took possession of First Republic on Monday, resulting in the third bankruptcy of a US bank since March after a last-ditch effort to convince rival lenders to prop up the ailing bank failed.
JPMorgan Chase, already the largest US bank by several counts, emerged as the weekend auction winner for First Republic. It will get all of the ailing bank’s deposits and a “substantial majority of its assets,” the New York-based bank says. said.
JPMorgan gets about $92 billion in deposits in the deal, including the $30 billion it and other major banks deposited into First Republic last month. The bank takes on $173 billion in loans and $30 billion in securities.
The Federal Deposit Insurance Corporation agreed to share losses on mortgages and commercial loans assumed by JPMorgan in the transaction, as well as providing it with a $50 billion line of credit.
JPMorgan said it made a $10.6 billion payment to the FDIC.
Since the sudden collapse of Silicon Valley Bank in March, attention has focused on First Republic as the weakest link in the US banking system. Like SVB, which catered to the tech startup community, First Republic was also a California-based specialty lender of sorts. It focused on serving wealthy Americans on the coast, enticing them with low-interest mortgages in exchange for leaving cash at the bank.
But that model fell apart in the wake of the SVB’s collapse, as First Republic clients withdrew more than $100 billion in deposits, the bank revealed in its April 24 earnings report. Institutions with a high proportion of uninsured deposits like SVB and First Republic ended up vulnerable as customers feared losing their savings in a bank run.
Shares of First Republic were down 97% by Friday’s close.
$13 billion hit
The weekend auction, which drew bids from JPMorgan Chase and PNC, as well as interest from other banks, was a “highly competitive bidding process” according to the FDIC.
The transaction will cost the FDIC’s Deposit Insurance Fund an estimated $13 billion, according to the regulator. By comparison, the SVB process cost the fund about $20 billion.
The California Department of Financial Protection and Innovation said By Monday, it had taken possession of First Republic and appointed the FDIC as trustee. The FDIC accepted JPMorgan’s offer for the bank’s assets.
“As part of the transaction, First Republic Bank’s 84 offices in eight states will reopen today during normal business hours as branches of JPMorgan Chase Bank, National Association,” the FDIC said. said in a statement. “All First Republic Bank depositors become JPMorgan Chase Bank, National Association depositors, and have full access to all of their deposits.”
JPMorgan CEO Jamie Dimon praised the acquisition in a statement early Monday morning.
“Our government invited us and others to perform, and we did,” he said. “This acquisition benefits our business overall in a modest way, adds value to shareholders, helps advance our asset strategy and complements our existing franchise.”
In the wake of Monday morning’s takeover, the Treasury Department sought to reassure Americans about the country’s financial system.
“The banking system remains healthy and resilient, and Americans should have confidence in the safety of their deposits and the ability of the banking system to perform its essential function of providing credit to businesses and families,” said a spokesman for the Department of Finance. Finance.
Weak link
First Republic’s deposit runoff in the first quarter forced it to borrow heavily from the Federal Reserve’s facilities to continue operations, which squeezed the company’s margins as borrowing costs are now much higher. According to BCA Research chief strategist Doug Peta, First Republic accounted for 72% of all loans from the Fed’s rebate window.
On April 24, First Republic CEO Michael Roffler attempted to paint a picture of stability following the events of March. Deposit outflows have slowed in recent weeks, he said. But the the stock fell after the company disavowed its earlier financial guidance and Roffler opted not to answer questions after an unusually brief conference call.
The bank’s advisers had hoped to persuade the largest US banks to help First Republic again. A version of the plan recently circulated involved banks being asked to pay above market rates for bonds on First Republic’s balance sheet, which would allow it to raise capital from other sources.
But in the end, the banks, which had banded together in March to inject $30 billion in deposits into First Republic, couldn’t agree on the bailout plan, and regulators took action, ending the bank’s 38-year run .
