First Republic Bank’s Dramatic Collapse Ends with JPMorgan Takeover

First Republic Bank, a former powerhouse in the American banking industry, saw its dramatic downfall come to an end as JPMorgan Chase acquired the bank after the Californian financial regulator took possession today, May 1st, 2023. This marks the third failure of an American bank since March, after unsuccessful attempts to convince other financial institutions to rescue the struggling bank.

JPMorgan Chase’s acquisition of First Republic Bank includes all deposits, even uninsured ones, and a considerable majority of assets. Following the announcement, JPMorgan’s shares saw a 2.6% increase in premarket trading.

Regulators Step In

The California Department of Financial Protection and Innovation (DFPI) took control of the bank and appointed the Federal Deposit Insurance Corporation (FDIC) as the receiver. JPMorgan’s bid for the bank’s assets was subsequently accepted by the FDIC.

In a statement, the FDIC confirmed that First Republic Bank’s 84 offices across eight states would reopen as branches of JPMorgan Chase Bank, and National Association during regular business hours. All depositors of First Republic Bank will become depositors of JPMorgan Chase Bank, National Association, and have unrestricted access to their deposits.

An Opportune Acquisition

Jamie Dimon, Chairman and CEO of JPMorgan, highlighted that the takeover minimized costs to the Deposit Insurance Fund. He emphasized that the government encouraged JPMorgan and others to step up, and that the acquisition is not only beneficial to the company overall but also accretive to shareholders, advances their wealth strategy, and complements their existing franchise.

As of April 13, 2023, First Republic Bank had total assets amounting to $229.1 billion and total deposits of $103.9 billion. Alongside assuming all deposits, JPMorgan Chase Bank, National Association, agreed to purchase a substantial majority of First Republic Bank’s assets.

Loss-Share Transaction

The FDIC and JPMorgan Chase Bank, National Association, will enter a loss-share transaction involving single-family, residential, and commercial loans purchased from the former First Republic Bank. Both parties will share in the losses and potential recoveries on the loans covered by the loss-share agreement.

This arrangement is designed to optimize asset recoveries by keeping them in the private sector and minimizing disruptions for loan customers. Additionally, JPMorgan Chase Bank, National Association, will assume all Qualified Financial Contracts.

The resolution of First Republic Bank was the result of a highly competitive bidding process and adhered to the least-cost requirements of the Federal Deposit Insurance Act. The FDIC estimates that the cost to the Deposit Insurance Fund will be approximately $13 billion. However, this estimate is subject to change when the FDIC terminates the receivership.