Global Courant 2023-05-01 13:20:44
A rendering of the First Republic Bank logo at its Park Avenue location, in New York City, March 10, 2023.
David Dee Delgado | Reuters
The California financial regulator took possession of First Republic On Monday, this resulted in the third bankruptcy of a US bank since March after a last-ditch attempt to convince rival lenders to prop up the ailing bank failed.
JPMorgan Chase acquired all of First Republic’s deposits, including uninsured deposits, and a “substantial majority of its assets”, according to a release. Shares of JPMorgan rose 2.6% in premarket trading on the news.
The California Department of Financial Protection and Innovation said it had taken possession of the bank and appointed the Federal Deposit Insurance Corporation 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.”
Jamie Dimon, chairman and CEO of JPMorgan, said the acquisition minimized costs to the deposit insurance fund.
“Our government invited us and others to perform, and we did,” he said in a statement. “This acquisition benefits our business overall in a modest way, adds value to shareholders, helps advance our asset strategy and complements our existing franchise.”
Weak link
But that model unraveled 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 such as SVB and First Republic were vulnerable as customers feared losing their savings in a bank run.
Shares of First Republic are down 97% year-to-date from Friday’s close.
That deposit drain forced First Republic 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 stock fell after the company disavowed its previous 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 and regulators took action, ending the bank’s 38-year run.
