JPMorgan Chase to buy distressed First Republic Bank in deal brokered by U.S. regulator

Regulators seized troubled First Republic Bank early Monday and sold all of its deposits and most of its assets to JPMorgan Chase Bank in an effort to end the banking turmoil at San Francisco-based First Republic, the third midsize bank to fail in two. month.

San Francisco-based First Republic is the third mid-sized bank to fail in two months. It was the second largest bank failure in US history, behind only Washington Mutual, which collapsed during the 2008 financial crisis and was also taken over by JPMorgan.

First Republic has struggled since the collapse of Silicon Valley Bank and Signature Bank and investors and depositors have increasingly worried that they may not survive due to the high number of uninsured deposits and exposure to low interest rate loans.

The Federal Deposit Insurance Corporation (FDIC) said early Monday that 84 First Republic Bank branches in eight states will reopen as JPMorgan Chase Bank branches and depositors will have full access to all deposits.

Regulators worked through the weekend to find a way forward before US stock markets opened. Markets in many parts of the world are closed for the May 1 Monday holiday. The two markets in Asia that opened, in Tokyo and Sydney, rose.

“Our government called on us and others to step up, and we did,” said Jamie Dimon, chairman and CEO of JPMorgan Chase.

As of April 13, First Republic had approximately $229 billion in total assets and $104 billion in total deposits, the FDIC said. The FDIC estimates the deposit insurance fund will get $13 billion from taking First Republic into receivership. Silicon Valley Bank bailout costs record $20 billion fund.

At the end of last year, the Federal Reserve ranked 14th in size among US commercial banks.

Growth is reduced by insured deposits

Before Silicon Valley Bank failed, First Republic had a banking franchise that was the envy of most of the industry. Clients – mostly the rich and powerful – rarely default on loans. The bank has made a lot of money making cheap loans to the rich, which reportedly includes Meta Platforms CEO Mark Zuckerberg.

Flush with deposits from the well-heeled, First Republic saw its total assets more than double from $102 billion at the end of 2019’s first quarter, when its full-time workforce was 4,600.

But the majority of deposits, like those at Silicon Valley and Signature Bank, are uninsured — that is, above the $250,000 limit set by the FDIC. And analysts and investors are worried. If First Republic fails, depositors may not get their money back.

Those fears were crystallized in the bank’s recent quarterly results. The bank said depositors pulled more than $100 billion from banks during the April crisis. San Francisco-based First Republic said that it could only stanch the bleeding after a group of large banks stepped in to save it with $30 billion in uninsured deposits.

Since the crisis, First Republic has been looking for a way to quickly turn itself around. The bank plans to sell its unprofitable assets, including low-interest mortgages it gives to wealthy clients. It also announced plans to cut up to a quarter of its workforce, which has around 7,200 employees by the end of 2022.

Investors remain skeptical. Bank executives have not taken questions from investors or analysts since the bank reported results, causing First Republic shares to sink further.

It can be difficult to restructure the balance sheet profitably when companies have to sell assets quickly and have fewer bankers to look for opportunities to invest in the bank. global financial crisis 15 years ago, and the banks that have benefited from the government’s backstop-helped keep them.