First Republic Bank’s dramatic collapse ends in JPMorgan takeover
First Republic Bank, a former powerhouse in the US banking industry, saw its dramatic downfall come to an end when JPMorgan Chase bought the bank after the California Financial Conduct Authority took over today, May 1, 2023. This marks the third failure of a US bank. since March, after unsuccessful attempts to convince other financial institutions to rescue the struggling bank.
JPMorgan Chase’s acquisition of First Republic Bank includes all deposits, including uninsured, and a significant majority of assets. Following the announcement, JPMorgan’s shares rose 2.6% in premarket trading.
Regulators step in
The California Department of Financial Protection and Innovation (DFPI) took control of the bank and appointed the Federal Deposit Insurance Corporation (FDIC) as receiver. JPMorgan’s bid for the bank’s assets was subsequently accepted by the FDIC.
In a statement, the FDIC confirmed that First Republic Bank’s 84 offices across eight states will reopen as JPMorgan Chase Bank and National Association branches during regular business hours. All First Republic Bank depositors will become JPMorgan Chase Bank, National Association depositors and have unlimited access to their deposits.
A convenient purchase
Jamie Dimon, chairman and CEO of JPMorgan, emphasized that the takeover minimized costs for the deposit insurance fund. He emphasized that the government encouraged JPMorgan and others to step up, and that the acquisition is not only beneficial to the company overall, but also incremental to shareholders, advancing their wealth strategy and complementing their existing franchise.
As of April 13, 2023, First Republic Bank had total assets of $229.1 billion and total deposits of $103.9 billion. In addition to assuming all deposits, JPMorgan Chase Bank, National Association agreed to purchase a substantial majority of First Republic Bank’s assets.
Loss share transaction
The FDIC and JPMorgan Chase Bank, National Association will enter into a loss sharing transaction involving single family, residential and commercial loans purchased from the former First Republic Bank. Both parties will share in the losses and potential repayments on the loans covered by the loss sharing agreement.
This scheme is designed to optimize the recovery of assets by keeping them in the private sector and minimizing disruption to loan customers. In addition, JPMorgan Chase Bank, National Association will underwrite all eligible financial contracts.
The award to First Republic Bank was the result of a highly competitive bidding process and met the lowest cost requirements of the Federal Deposit Insurance Act. The FDIC estimates that the cost of the deposit insurance fund will be approximately $13 billion. However, this estimate may change when the FDIC closes the receivership.
