The nation’s largest bank got a little larger on Monday, as federal regulators seized San Francisco-based First Republic Bank and entered an agreement to sell it to JPMorgan Chase.
In a news release, the Federal Deposit Insurance Corp. (FDIC) said it was appointed receiver after the bank was closed by the California Department of Financial Protection and Innovation.
It is the second-largest U.S. bank failure and follows two other large failures in the past two months, joining Santa Clara, Calif.-based Silicon Valley Bank (SVB) and New York-based Signature Bank, which both collapsed in March.
The FDIC said that, to protect depositors, it is entering into a purchase and assumption agreement with JPMorgan Chase Bank, N.A., of Columbus, Ohio, to assume all of First Republic’s deposits and ”substantially all” of its assets.
As of April 13, First Republic Bank had approximately $229.1 billion in total assets and $103.9 billion in total deposits, the FDIC said. The bank was also a significant mortgage lender, originating about $25.5 billion in loans last year, according to Modex.
Lost $100B In March
First Republic, however, lost about $100 billion in deposits in March in the wake of the collapse of SVB. It threatened to sink for weeks afterward, even after some of America’s largest banks provided $30 billion in deposits to keep it afloat. JPMorgan said those deposits will be repaid after the deal closes.
“Our government invited us and others to step up, and we did,” said Jamie Dimon, chairman & CEO of JPMorgan Chase. “Our financial strength, capabilities, and business model allowed us to develop a bid to execute the transaction in a way to minimize costs to the Deposit Insurance Fund.”
The FDIC estimated the cost to the federal Deposit Insurance Fund will be about $13 billion.
Under its agreement with the FDIC, JPMorgan Chase said it will:
- Acquire the substantial majority of First Republic Bank’s assets, including approximately $173 billion of loans and approximately $30 billion of securities, and
- Assume approximately $92 billion of deposits, including $30 billion of large bank deposits, which will be repaid post-close or eliminated in consolidation.
JPMorgan Chase will not assume First Republic’s corporate debt or preferred stock, it said.
As a result of this transaction, JPMorgan Chase said it expects to:
- Recognize an upfront, one-time, post-tax gain of approximately $2.6 billion, which does not reflect the approximately $2 billion dollars of post-tax restructuring costs anticipated over the next 18 months, and
- Remain very well-capitalized with a CET1 ratio consistent with its Q1 2024 target of 13.5%, and to maintain healthy liquidity buffers.
“This acquisition modestly benefits our company overall,” Dimon said, adding “it is accretive to shareholders, it helps further advance our wealth strategy, and it is complementary to our existing franchise.”
JPMorgan said the acquired First Republic businesses will be overseen by its Consumer and Community Banking (CCB) Co-CEOs, Marianne Lake and Jennifer Piepszak.
“First Republic has built a strong reputation for serving clients with integrity and exceptional service,” Lake and Piepszak said in joint statement. “We look forward to welcoming First Republic employees. As always, we are committed to treating employees with respect, care and transparency.”
Branches Reopen Today
As part of the transaction, First Republic’s 84 bank offices in eight states will reopen today as branches of JPMorgan Chase Bank, with normal business hours, the FDIC said. All depositors of First Republic Bank will become depositors of JPMorgan Chase Bank, and will have full access to all of their deposits, it said.
Deposits will continue to be insured by the FDIC, and customers do not need to change their banking relationship in order to retain their deposit insurance coverage up to applicable limits.
Customers of First Republic Bank should continue to use their existing branch until they receive notice from JPMorgan Chase Bank that it has completed systems changes to allow JPMorgan branches to process their accounts as well, the FDIC said.
In addition, the FDIC said it and JPMorgan are also entering into a loss-share transaction on single-family, residential, and commercial loans it purchased from the First Republic. The FDIC and JPMorgan will share in the losses and potential recoveries on the loans covered by the loss–share agreement.
The agency said the loss–share transaction is “projected to maximize recoveries on the assets by keeping them in the private sector.” The transaction is also expected to minimize disruptions for loan customers. JPMorgan will assume all qualified financial contracts, the agency said.
First Republic also faces a class action lawsuit that claims the bank mislead shareholders about its financial stability.
The Law Offices of Howard G. Smith, based in Bensalem, Pa., on Friday reminded investors of the June 23, deadline to file a lead plaintiff motion in the case filed on behalf of investors who purchased First Republic Bank securities between Jan. 14, 2021, and March 14, 2023.
The lawsuit claims bank officials made "materially false and/or misleading statements, as well as failed to disclose material adverse facts about the company’s business, operations, and prospects," especially in the wake of the collapse of SVB.
