JPMorgan Chase is buying First Republic Bank after the beleaguered institution was seized by the Federal Deposit Insurance Corporation (FDIC).
As Slay News reported, First Republic collapsed late last week, marking the third significant implosion in under two months.
Regulators stepped in after the First Republic’s shares plunged further to new lows on Friday.
The FDIC announced on Monday morning that First Republic is being bought by America’s largest bank, JPMorgan.
On Monday, California financial regulators ordered First Republic Bank closed, with the FDIC appointed as receiver.
“To protect depositors, the FDIC is entering into a purchase and assumption agreement with JPMorgan Chase Bank, National Association, Columbus, Ohio, to assume all of the deposits and substantially all of the assets of First Republic Bank,” the FDIC said in a May 1 statement.
The purchase and assumption agreement will see the FDIC contribute an estimated $13 billion from its deposit insurance fund to sweeten the deal.
The deal was hammered out late Sunday and early Monday after several banks submitted last-minute bids.
The FDIC said that JPMorgan’s offer fits the bill.
JPMorgan’s offer includes the assumption of all customer deposits and substantially all of its assets.
“The resolution of First Republic Bank involved a highly competitive bidding process and resulted in a transaction consistent with the least-cost requirements of the Federal Deposit Insurance Act,” the FDIC said.
This refers to the legal requirement for the FDIC to pick a form of “resolution”—or orderly liquidation of a failing bank—that results in the lowest possible cost to its deposit insurance fund and, indirectly, to customers of healthy banks that will eventually be encumbered by the cost of topping up the fund via a special assessment (or insurance premium) on banks.
The FDIC is also entering into a loss-share transaction with JPMorgan Chase on real estate loans purchased from First Republic, an arrangement meant to both minimize disruptions for loan customers and maximize recoveries.
“The FDIC as receiver and JPMorgan Chase Bank, National Association, will share in the losses and potential recoveries on the loans covered by the loss-share agreement,” the FDIC said.
First Republic Bank had approximately $229.1 billion in total assets and $103.9 billion in total deposits as of April 13, 2023.
Under the terms of the takeover, depositors of First Republic will automatically become depositors of JPMorgan Chase and will continue to have full access to their deposits.
On Monday, First Republic Bank’s 84 offices in eight states will reopen as branches of JPMorgan Chase, which will operate normally during regular business hours.
The transaction makes JPMorgan Chase even more massive.
The announcement of the deal caps weeks of speculation about the fate of First Republic, which was tossed a lifeline recently in the form of a $30 billion injection of uninsured deposits by five of the nation’s biggest banks, including JPMorgan.
First Republic was, by July 2020, the 14th biggest bank in the United States, and at the end of last year, it employed over 7,200 people.
The San-Francisco-based lender was, like other regional lenders, squeezed by the Federal Reserve’s rapid rate hikes in a bid to quash soaring inflation.
Rising rates made the bank’s portfolio of bonds drop in value, while the March collapse of Silicon Valley Bank (SVB) sparked what First Republic executives said was an “unprecedented” outflow of deposits, sparking a steep selloff of its shares.
The failure of First Republic marks the largest bank collapse since 2008.
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