First Republic Bank Has been Seized By Regulators, Assets Sold To JPMorgan

On Monday, regulators sold the assets of First Republic Bank (FRC.N) to JPMorgan Chase & Co (JPM.N) to resolve the largest bank failure in the U.S. since the 2008 financial crisis, and to bring an end to prolonged banking turmoil.

We published an article late last week on First Republic being on the brink of collapse. 

During the March banking sector crisis, smaller banks like First Republic suffered massive deposit withdrawals as customers fled to larger institutions like JPMorgan, following the collapse of two other mid-sized U.S. banks. 

You can read about the other bank closures here. 

The bank had been struggling since then, and the situation worsened when it disclosed over $100 billion in outflows and a plan to explore new options. The California regulators seized First Republic Bank, and the FDIC put it into receivership, making it the third major U.S. bank failure in two months, and the largest since Washington Mutual in 2008. 

JPMorgan paid $10.6 billion to the FDIC as part of the deal to take control of most of the San Francisco-based bank’s assets, including access to its coveted wealthy client base. Shareholders of First Republic will lose their investments, according to Wedbush analysts.

“Our government invited us and others to step up, and we did,” said Jamie Dimon, Chairman and CEO of JPMorgan, who played a significant role in the 2008 financial crisis and purchased Bear Stearns in a weekend rescue, stated.

According to the regulator’s preliminary estimate, the deal is expected to cost the FDIC’s Deposit Insurance Fund around $13 billion.

On Monday, U.S. President Joe Biden praised the deal for safeguarding depositors without burdening taxpayers with the costs. He reiterated his plea for stricter bank regulation and oversight.

“These actions are going to make sure that the banking system is safe and sound,” Biden told an event at the White House. “Critically, taxpayers are not the ones that are on hook.”

According to White House press secretary Karine Jean-Pierre, the regulators’ actions to safeguard depositors and maintain stability in the banking system were “decisive” and commendable. She also emphasised that these actions would ensure accountability for First Republic, which, she believes, was “severely mismanaged.”

According to analysts and industry executives, the recent deal, which was finalised over the weekend after the FDIC ran an auction process with several other banks bidding, is expected to bring stability to the markets. However, they cautioned that it came with a price – with larger banks becoming stronger, while smaller banks found it increasingly difficult to do business.

Dennis Kelleher, CEO of Wall Street reform group Better Markets, expressed concern that the outcome of the auction reflected “unhealthy consolidation, unfair competition, a dangerous increase in too-big-to-fail banks – all while harming community banks, small business lending, and economic growth.”

As a result of the deal, JPMorgan’s net deposits are expected to increase by 3%, according to a research note by Wells Fargo. However, the bank already holds more than 10% of the nation’s total bank deposits.

During a conference call with reporters, JPMorgan Chairman and CEO Jamie Dimon emphasised the importance of having large, successful banks in the world’s largest economy, citing the ability to serve clients such as cities, schools, hospitals, governments, the IMF, and the World Bank. He also invited anyone who believes otherwise to contact him directly.

Meanwhile, Citigroup CEO Jane Fraser praised the deal, saying it resolves the last major source of uncertainty for the sector following a period of turmoil. However, Fraser cautioned against tainting all regional and small banks as having significant problems during a conference.

“This is not the world financial crisis, this is not the savings and loan crisis. There will be stress, but let’s be targeted where it is.”

In March, the closure of Silicon Valley Bank and Signature Bank triggered a deposit flight from U.S. lenders, prompting the Fed to implement emergency measures to stabilise the markets. Credit Suisse also required a bailout from UBS, while Silvergate, which focused on cryptocurrencies, voluntarily liquidated. Some experts attributed the crisis in the banking sector to a combination of ultra-loose monetary policy over several years followed by a sudden reversal and rapid interest rate hikes by the U.S. Federal Reserve in the past year.

“When it was just SVB, it was easy to blame management. However, now that we see the pattern, it is evident that the Fed has moved too far, too fast and is breaking things,” said Thomas J. Hayes, Chairman and Managing Member, Great Hill Capital.

According to insiders, JPMorgan was one among a few potential purchasers that included PNC Financial Services Group (PNC.N) and Citizens Financial Group Inc (CFG.N) that submitted their final offers to U.S. regulators during an auction held on Sunday.

JPMorgan announced that it has taken on all of the deposits of the failed bank and will return $25 billion out of the $30 billion deposited by big banks in March to support First Republic. 

The bank also confirmed that the 84 branches of First Republic across eight states will reopen as JPMorgan Chase Bank branches starting from Monday.