JPMorgan Chase buys troubled First Republic Bank

A worker cleans the outside of a First Republic bank in San Francisco.
A worker cleans the outside of a First Republic bank in San Francisco.
Justin Sullivan/Getty Images

JPMorgan Chase, one of the biggest banks in the U.S., is buying failed First Republic Bank's deposits and a "substantial amount of their assets and certain liabilities," JPMorgan Chase said in a press release Monday.

The California Department of Financial Protection and Innovation announced early Monday that First Republic had been closed and put into the receivership of the the Federal Deposit Insurance Corporation (FDIC) and then sold to JPMorgan.

This marks the third time the U.S. government has taken control of a U.S. lender this year.

The acquisition includes the "assumption of approximately $92 billion of deposits" and the "acquisition of the substantial majority of First Republic Bank's assets, including approximately $173 billion of loans and approximately $30 billion of securities," JPMorgan says.

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First Republic's 84 branches will be rebranded, and they will open as normal on Monday.

JPMorgan Chase CEO Jamie Dimon said in a statement the bank made a bid in a way that will "minimize costs" to the FDIC's Deposit Insurance Fund. The FDIC estimates this will cost that fund about $13 billion.

"Our government invited us and others to step up, and we did," Dimon said. "This acquisition modestly benefits our company overall, it is accretive to shareholders, it helps further advance our wealth strategy, and it is complementary to our existing franchise."

The U.S. Treasury Department was encouraged that this was resolved with the least amount of cost to the Deposit Insurance Fund.

"The banking system remains sound and resilient, and Americans should feel confident in the safety of their deposits and the ability of the banking system to fulfill its essential function of providing credit to businesses and families," according to a Treasury spokesperson.

First Republic is the third — and biggest — U.S. bank to fail this year. In March, federal regulators swept in to protect customers of Silicon Valley Bank and Signature Bank. Citing potential risk to the broader financial system, they took unprecedented action to insure all deposits at the two banks — even deposits that exceeded the FDIC's $250,000 threshold for insurance.

The government protected bank customers, but it didn't bail out shareholders who were wiped out.

After Silicon Valley Bank and Signature Bank were taken into receivership, the FDIC solicited bids to buy the two lenders. A subsidiary of New York Community Bank bought most of Signature Bank, and First Citizens Bank acquired Silicon Valley Bank.

More bank runs didn't come to pass, but First Republic was the exception

The twin failures of Silicon Valley Bank and Signature Bank threatened to spark more bank runs. But by and large, deposits have stabilized, according to recent earnings reports.

"That fear, that mass exodus that people were concerned about just didn't happen," says Jared Shaw, a bank analyst at Wells Fargo Securities, who notes lenders were proactive.

"One of the things that the banks did a great job with was reaching out to their customers, explaining their balance sheets, and explaining where their liquidity comes from."

That seemed to calm nervous customers and investors. But First Republic was the exception.

"That deposit pressure was worse than expected," Shaw says.

First Republic shares tumbled last week

First Republic's death spiral began in earnest last Monday, when it announced that it had lost $100 billion worth of deposits during the first three months of the year. Trading of the bank's shares became so volatile that the New York Stock Exchange halted trading several dozen times last week.

On Friday, shares closed at $3.51 — down more than 97 percent year to date.

The San Francisco-based bank, which was founded in 1985, mostly catered to wealthy clients, offering home mortgages and commercial loans.

First Republic first came under intense scrutiny after Silicon Valley Bank and Signature Bank collapsed. Yet 11 of the country's biggest banks, led by JPMorgan, threw First Republic a lifeline when they deposited $30 billion in it.

Those moves ultimately failed to convince Wall Street, and customers continued to withdraw their money.

First Republic was running out of options

First Republic attempted to sell itself but found few takers, leaving a government-led rescue as the only available option.

The FDIC actions come as regulators themselves have been under scrutiny about whether they could have done more to prevent the failures of Silicon Valley Bank and Signature Bank.

On Friday, the Federal Reserve and the FDIC issued reports on what led to the collapses of those two lenders. They blamed management while admitting they could have done more to oversee the banks.

The FDIC is scheduled to release another report on Monday, including proposed changes to deposit insurance.

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