JP Morgan to Acquire First Republic Bank as FDIC Takes Over Floundering Bank

First Republic Bank (NYSE:FRC) was briefly shuttered by the California Department of Financial Protection and Innovation, and the Federal Deposit Insurance Corporation (FDIC) stepped in as receiver of the bank following weeks of speculation that FRB would be the next shoe to drop in the current banking crisis. It had been widely reported that the FDIC was taking bids on acquiring the bank in recent days, with JP Morgan (NYSE:JPM), once again, moving to acquire the bank – adding it to the list of failed institutions the bank has ingested. Shares in JPM rose by over 4% in early trading following the announcement.

CNBC  reported that JPM CEO Jamie Dimon said the transaction would quell some of the market nervousness and “stabilize the system” while bank lending will diminish in the near term. He added that he believes the banking system to be very, very sound.

First Republic fell prey to the inability to manage interest rate risk correctly. As low-interest loans tanked in value, while interest rates rose rapidly, deposit holders fled the bank. As most people use digital banking services today, removing money from accounts was fairly simple and fast.  An attempt to steady First Republic by several large banks by adding to deposits – failed to accomplish its goal.

According to the FDIC, JPMorgan Chase Bank, National Association submitted a bid for all of First Republic Bank’s deposits which will include all of the bank’s 84 offices in eight states that will reopen as branches of JPMorgan Chase Bank today during normal business hours. The bidding for the bank, which was reported to include multiple other large banks, was said to be “highly competitive.”

All depositors of First Republic Bank will become depositors of JPMorgan Chase Bank with full access to all of their deposits.

As of April 13, 2023, First Republic Bank was said to have approximately $229.1 billion in total assets and $103.9 billion in total deposits.  In addition to assuming all of the deposits, JP Morgan agreed to purchase substantially all of First Republic Bank’s assets.

The FDIC and JP Morgan are also entering into a loss-share transaction on single-family, residential and commercial loans it purchased from the former First Republic Bank.  The FDIC and JPMorgan will share in the losses and potential recoveries on the loans covered by the loss–share agreement.

Last week, First Republic reported Q1 2023 results which indicated deposits had declined by a whopping 35.5% year over year. At the same time, revenue had declined by 13.4% as the bank struggled to manage the fiscal storm.

Many pundits wonder if the failure of First Republic will be the last bank to collapse due to the bank crisis. First Republic will now be the second largest bank failure on record.

While the bank should transition seamlessly to JPM, the FDIC estimates that the cost to the Deposit Insurance Fund will be about $13 billion.

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