On Monday, regulators seized First Republic Bank, making it the third U.S. bank failure this year and the biggest one since the 2008 financial crisis.[0] JPMorgan Chase acquired the majority of the bank’s operations, including its $92 billion in deposits, $173 billion in loans, and $30 billion in securities.[1] The acquisition came after the bank revealed deposit losses exceeding $100 billion in the first quarter, causing concern among investors and depositors.
The bank had received a temporary $30 billion infusion from the nation’s biggest banks in March as a way to restore clients’ confidence, but it failed to assuage concerns about the bank’s viability.[2] First Republic had been forced to borrow heavily to make up for deposit outflows, accruing a combined total of $121.3 billion in outstanding borrowings from the Federal Reserve and the Federal Home Loan Bank Board as of April 28.[3] This made additional borrowing from federal authorities at viable rates impossible.[3]
The failure of First Republic follows similar situations at New York’s Signature Bank and Santa Clara’s Silicon Valley Bank, which collapsed suddenly in March after panicked depositors took their money out. The events leading to the demise of all three were deeply related, with First Republic getting caught in the Silicon Valley Bank failure spiral.
As part of the deal made with federal officials, the FDIC and JPMorgan Chase are entering into a loss-share agreement on single-family, residential, and commercial loans it purchased from First Republic.[3] The FDIC’s insurance fund has a priority claim on the bank’s assets, which must be fully reimbursed before the next class of creditors, general trade creditors, can get reimbursed.[4] The FDIC estimates that the cost to the Deposit Insurance Fund will be about $13 billion, financed by fees from banks.[3]
Despite the failure, depositors need not worry, as their deposits will continue to be insured by the FDIC, and customers do not need to change their banking relationship to retain their deposit insurance coverage up to applicable limits.[5] “First Republic customers can bank as usual and feel confident that their deposits are backed by the strength and security of JPMorgan Chase,” said JPMorgan Chase CFO Jeremy Barnum.[6]
The acquisition of First Republic by JPMorgan Chase is expected to be modestly earnings per share accretive, and JPMorgan Chase will assume all of First Republic’s deposits and substantially all of its assets.[7] JPMorgan’s stock jumped 3.3%, breaking out above the buy point early Monday.[8]
0. “Bitcoin pulls back to start May as First Republic Bank saga comes to an end” CNBC, 1 May. 2023, https://www.cnbc.com/2023/05/01/bitcoin-pulls-back-to-start-may-as-first-republic-bank-saga-comes-to-an-end.html
1. “First Republic stock investors face ‘wipe-out,’ analyst says” Yahoo Finance, 1 May. 2023, https://finance.yahoo.com/news/first-republic-stock-investors-face-wipe-out-analyst-says-190031923.html
2. “S.F.’s First Republic Bank sold to JPMorgan to avert fears of collapse” San Francisco Chronicle, 29 Apr. 2023, https://www.sfchronicle.com/bayarea/article/first-republic-bank-17994980.php
3. “Regulators Seize First Republic and Sell Assets to JPMorgan Chase” The San Francisco Standard, 1 May. 2023, https://sfstandard.com/business/regulators-seize-first-republic-and-sell-assets-to-jpmorgan-chase/
4. “First Republic: What happens to deposits and shareholders now?” CBS News, 1 May. 2023, https://www.cbsnews.com/news/first-republic-bank-stock-deposits-shareholders-cbs-explains/
5. “The latest on JPMorgan Chase takeover of First Republic Bank: Live updates” CNN, 1 May. 2023, https://www.cnn.com/business/live-news/stocks-first-republic-banking/index.html
6. “First Republic Bank seized by regulators, then sold to JPMorgan Chase” CBS News, 1 May. 2023, https://www.cbsnews.com/news/first-republic-bank-fdic-jpmorgan-chase-control/
7. “Regulators seize First Republic Bank and sell it to JPMorgan Chase” Reason, 1 May. 2023, https://reason.com/2023/05/01/government-seizes-first-republic-bank-and-sells-it-to-jpmorgan-chase/
8. “Dow Jones Rises As First Republic Bank Crashes 45%” Investor’s Business Daily, 1 May. 2023, https://www.investors.com/market-trend/stock-market-today/dow-jones-futures-fall-jpmorgan-buys-failed-first-republic-bank-frc-stock-plunges-45/