First Republic Bank was closed by regulators early on Monday morning. They immediately sold its deposits to JPMorgan Chase and the majority of its assets after scrambling over the weekend for a deal.
After last week's desperate efforts to broker a bailout, First Republic Bank seemed destined for receivership. This is the second largest bank failure in U.S. history, behind only Washington Mutual's 2008 failure. Silicon Valley Bank, which went under in March, was the second largest bank failure just a little over a month later.
California Department of Financial Protection and Innovation (California Department of Financial Protection and Innovation) closed San Francisco's First Republic Bank on Monday and appointed FDIC as receiver. Regulators sold JPMorgan Chase the majority of the bank’s business for $16 billion.
JPMorgan will take over First Republic's insured deposits and uninsured ones totaling $92 billion. This includes $30 billion of large bank deposits made by JPMorgan and others to try and prevent First Republic's failure. JPMorgan stated that these deposits would be repaid after the close or eliminated during consolidation. JPMorgan will also buy the majority of assets at the bank, including $173 Billion in loans and 30 Billion in securities.
According to the FDIC, First Republic Bank's total assets were approximately $229.1 Billion and its deposits $103.9 Billion as of April 13.
JPMorgan required a regulatory exemption to purchase First Republic because it already held more than 10% in U.S. deposit.
JPMorgan and the FDIC will also engage in a loss-sharing transaction for residential, commercial and single family loans that First Republic has purchased. The FDIC will also provide $50 billion of fixed-rate, five-year term financing.
First Republic's branches in 84 locations will be reopened Monday, as per JPMorgan's regular business hours. JPMorgan announced that customers will be able to access their deposits and services without interruptions as of today.
PNC Financial and Citizens Financial Group are also said to have bid on First Republic.
In a press release, JPMorgan CEO Jamie Dimon stated that "Our government asked us to step up and we did." Our financial strength, business model and capabilities allowed us to create a bid that would minimize the costs for the Deposit Insurance Fund.
First Republic Bank Deal Costs
The FDIC estimates that the Deposit Insurance Fund will be costing roughly $13 billion. Once the FDIC ends receivership, the final cost will be known.
JPMorgan anticipates a one-time gain, upfront and post-tax, of $2.6 billion. This does not include the $2 billion of post-tax restructuring expenses that are expected over the next 18 month.
JPMorgan expects that the deal will also be "modestly earnings per share accretive" and generate $500,000,000 of additional net income each year, excluding post-tax gains or restructuring costs.
First Republic assets will be liquidated by the FDIC to pay out receivership dividends.
"A Positive Transaction"
In a note published on Monday, Bank of America Securities analyst Ebraham Poonawala stated that the First Republic acquisition "should likely stop forced sales of banks because of deposit flight." It's possible that other banks will still face profitability issues, which may prompt management to consider strategic options.
He wrote: "At a first glance, we see this as a positive deal for JPMorgan and the sentiment surrounding bank stocks." The deal will also help JPMorgan grow its private bank by adding an "army of private bankers" (as well as high-net-worth client relationships) to the U.S. West Coast and East Coast.
Poonawala pointed out that the acquisition of First Republic Bank protected all deposits, insured or uninsured. It did not require a systemic-risk exception.
Shares have fallen 97% in 2023.
According to the FDIC's claim-paying order, First Republic Bank shareholders are fourth and last in line, after depositors and general unsecured creditors, as well as holders of subordinated debt.
JPM's stock soared 3.5% on Monday morning after the news. At the opening, shares cleared the 141.88 buy-point for a cup with handle.
PNC shares fell by 5.3%, while Citizens Financial shares declined 6% on Monday morning.
The SPDR S&P Regional Banking ETF KRE has slipped 0.5%.