JP Morgan in £8.5bn deal to buy up embattled bank First Republic

Economy
By Liam

JP Morgan in £8.5bn deal to buy embattled bank First Republic… But interest rate threat still looms, boss Jamie Dimon warns

By Emily Hawkins for The Daily Mail

published: | Updated:

JP Morgan bosses yesterday insisted the banking system was out of trouble when it stepped in to buy up embattled bank First Republic.

The U.S. investment bank agreed to acquire most of First Republic’s assets, it was confirmed yesterday following a request from regulators.

California lender First Republic is the third U.S. bank to fail in recent months, raising concerns that a broader banking crisis is imminent.

But JP Morgan leaders tried to allay concerns during a call to analysts yesterday, with CEO Jamie Dimon insisting that a slew of bank failures should ease.

Prediction: JP Morgan boss Jamie Dimon (pictured) believes recent string of bank failures should now ease

Dimon described the banking system as “stable” and said “this part of the crisis is over.”

But the 67-year-old billionaire admitted that the banking system still faces several threats, including the current interest rate environment.

The bank’s chief financial officer, Jeremy Barnum, said: “This is a very, very different situation from 2008.”

Barnum told analysts yesterday that JP Morgan was not pursuing a deal, but had been invited by the government to take over the bank.

Regulators from the Federal Deposit Insurance Corporation (FDIC) had asked a handful of banks to conduct a bailout.

JP Morgan will pay $10.6bn (£8.5bn) to the FDIC for the bank, which had amassed a market value of more than $20bn (£16bn) by early 2023.

First Republic was founded in 1985 and was known for its rich customer base.

It was a medium-sized lender, about the size of Silicon Valley Bank. Rising interest rates had strained the business model of offering affordable mortgages to high net worth customers, while borrowing costs have also skyrocketed in recent months.

Its demise is overshadowed only by the bankruptcy of Washington Mutual bank in 2008, amid the global financial crisis.

However, the US Treasury Department tried to allay concerns of a major collapse.

It said in a statement: “The banking system remains sound and resilient, and Americans should have confidence in the safety of their deposits.”

In a note yesterday, Wells Fargo analyst Mike Mayo predicted that the latest crisis was in the “home stretch.” But other analysts were more cautious.

In another post, James Fotheringham and Rufus Hone of BMO Capital Markets said, “This is another one-time solution to the liquidity crisis.” The analysts warned there was a “reality of another bank failure.”

Shares of regional lenders fell in US morning trading yesterday, with the KBW Regional Banking Index falling nearly 1 percent.

Victims this year greater than fallers in financial crisis

The three U.S. banks that have collapsed this year have outnumbered the 25 banks that failed at the height of the 2008 financial crisis.

First Republic was seized by regulators yesterday, while Silicon Valley Bank and Signature Bank failed in March.

The trio of lenders had $532bn (£426bn) in assets. This amount exceeds the $526bn (£421bn) held by bankrupt banks in 2008, according to the New York Times, which adjusted the numbers for inflation.

Between 2008 and 2015, more than 500 federally insured banks went bankrupt, mostly regional lenders.

Lehman Brothers and Bear Stearns also collapsed, as did Washington Mutual – the biggest banking victim in US history.

JP Morgan also bought Washington Mutual when the bank collapsed in 2008 with $310bn (£248bn) in assets.

When asked if the banking sector should be capitalized and liquid in the same way as JP Morgan, boss Jamie Dimon said: “People need to think very, very carefully about change.”

He said it is important that smaller banks are not constrained by regulations.

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