JPMorgan Chase to buy struggling First Republic Bank in US regulator-brokered deal

Regulators seized troubled First Republic Bank early on Monday and sold all of its deposits and most of its assets to JPMorgan Chase Bank in a bid to head off further banking turmoil in the United States. San Francisco-based First Republic is the third midsize bank to fail in two months.

San Francisco-based First Republic is the third midsize bank to fail in two months. It is the second-largest bank failure in US history, behind only Washington Mutual, which collapsed at the height of 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 there was growing concern among investors and depositors that it would not survive due to its high volume of uninsured deposits and its exposure to low interest rate loans.

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

Regulators worked all weekend to find a way forward before U.S. stock markets open. Markets in many parts of the world were closed for the May Day holiday on Monday. The two Asian markets that were open, Tokyo and Sydney, grew.

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

As of April 13, the First Republic had about $229 billion in total assets and $104 billion in total deposits, the FDIC said. The FDIC estimated that its deposit insurance fund would take a $13 billion hit if it put the First Republic into receivership. Its bailout of Silicon Valley Bank cost the fund a record $20 billion.

Late last year, the Federal Reserve ranked it 14th among US commercial banks.

Growth undermined by insured deposits

Prior to the failure of Silicon Valley Bank, First Republic had a banking franchise that was the envy of most industry players. His clients – mostly wealthy and powerful – have rarely defaulted on their loans. The bank made much of its money by providing low-cost loans to wealthy people, including Meta Platforms CEO Mark Zuckerberg.

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

But the vast majority of its deposits, like those at Silicon Valley and Signature Bank, were uninsured, meaning above the $250,000 limit set by the FDIC. And that worried analysts and investors. If the First Republic failed, its depositors might not get all their money back.

These fears crystallized in the bank’s recent quarterly results. The bank said depositors withdrew more than $100 billion from the bank during the April crisis. The San Francisco-based First Republic said it was only able to stem the bleeding after a group of big banks stepped in to save it with $30 billion in uninsured deposits .

Since the crisis, First Republic has been looking for a way to recover quickly. The bank planned to sell unprofitable assets, including the low-interest mortgages it provided to wealthy customers. It also announced its intention to lay off up to a quarter of its workforce, which totaled around 7,200 employees at the end of 2022.

Investors remained skeptical. Bank executives haven’t answered any questions from investors or analysts since the bank released its results, sending First Republic shares falling further.

It can be difficult to restructure a balance sheet profitably when a company needs to sell assets quickly and has fewer bankers to find investment opportunities for the bank. It took years for banks like Citigroup and Bank of America to return to profitability after the global financial crisis 15 years ago, and these banks had a government-funded safety net to keep them operating.