First Republic Bank was sold to JPMorgan Chase after regulators seized it Monday, making it the third major bank to fail in two months.
The California Department of Financial Protection and Innovation (DFPI) said it has shut down the San Francisco-based bank and agreed a deal to sell its assets after failing to come up with a workable rescue plan.
DFPI has appointed the Federal Deposit Insurance Corporation (FDIC) as trustee and said it has accepted an offer from JPMorgan Chase Bank to take over all of the deposits.
To protect depositors, the FDIC is entering into a purchase and acquisition agreement with JPMorgan Chase Bank, National Association, Columbus, Ohio, to acquire all of the deposits and substantially all of the assets of First Republic Bank, the Federal Deposit Insurance Corporation. said in a statement.
Last week, First Republic announced that it had lost more than $100 billion in deposits in the first quarter, causing its shares to plummet.
First Republic Bank was sold to JPMorgan Chase after regulators seized it Monday
The bank’s stock closed Friday at $3.51, a fraction of the roughly $170 per share it traded for a year ago. It fell further in after-hours trading.
The federal government intervened with the FDIC, an agency responsible for guaranteeing bank deposits, and the U.S. Treasury approaching six banks last week to gauge their interest in buying First Republic assets, a source told me last week. news agency AFP on condition of anonymity.
JPMorgan was one of several interested buyers, including PNC Financial Services Group and Citizens Financial Group Inc, to make a final bid on Sunday in an auction hosted by regulators, sources told Reuters news agency.
The major Wall Street bank will take over most of First Republic’s assets and all deposits, including uninsured ones, regulators said in a statement.
“Our government invited us and others to step forward, and we did,” said Jamie Dimon, chairman and CEO of JPMorgan Chase.
“Thanks to our financial strength, capabilities and business model, we were able to develop an offer to execute the transaction in a way that minimized costs to the Deposit Insurance Fund.”
The bankrupt bank’s 84 offices in eight states will reopen as branches of JPMorgan Chase Bank starting Monday, according to the statement.
The deal for First Republic, which had total assets of $229.1 billion as of April 13, comes less than two months after Silicon Valley Bank and Signature Bank failed in early March amid a deposit flight from U.S. lenders, forcing the Federal Reserve to intervene with emergency measures to stabilize markets.
Those failures came after crypto-focused Silvergate voluntarily liquidated.
First Republic has struggled with high levels of uninsured deposits since the collapses of Silicon Valley Bank and Signature Bank, as investors and depositors grew increasingly concerned that the bank would not survive as an independent entity.
Global markets have regularly been rocked by concerns about banking sector turmoil since the collapse of Silicon Valley Bank.
On Monday, markets in many parts of the world were closed for the May 1 holiday. The two markets in Asia that were open, Tokyo and Sydney, rose Monday as US futures changed little, with the contract for the S&P 500 rising nearly 0.1 percent.
The bank’s stock closed Friday at $3.51, a fraction of the roughly $150 per share it traded for just three months ago a year ago. It fell further in after-hours trading
First Republic was seen as the bank most likely to collapse due to its high amount of uninsured deposits and exposure to low-interest loans.
But before Silicon Valley Bank went bankrupt, First Republic had a banking franchise that most of the industry envied.
Its clients – usually the wealthy and powerful – rarely defaulted on their loans.
The 72-branch bank has made much of its money by providing cheap loans to the wealthy, reportedly including Meta Platforms CEO Mark Zuckerberg.
Flushed with deposits from the well-to-do, First Republic saw total assets more than double from $102 billion at the end of the first quarter of 2019, when its full-time workforce reached 4,600.
But the vast majority of First Republic’s deposits, such as those in Silicon Valley and Signature Bank, were uninsured — that is, above the $250,000 limit set by the FDIC.
And that worried analysts and investors. If First Republic were to fail, savers may not get all of their money back.
That fear was crystallized in the bank’s recent quarterly results. The bank said depositors pulled more than $100 billion from the bank during the April crisis.
First Republic said it could only stop the bleeding after a group of big banks stepped in to bail it out with $30 billion in uninsured deposits.
Since the crisis, First Republic has been looking for a way to quickly turn itself around. The bank planned to sell unprofitable assets, including the low-interest mortgages it issued to wealthy clients.
It also announced plans to lay off up to a quarter of its workforce, which totaled about 7,200 employees by the end of 2022.
Mark Zuckerberg is said to have been one of First Republic’s clients and received a mortgage on very favorable terms
But investors remained sceptical. The bank’s executives have not answered questions from investors or analysts since the bank reported its results, causing the stock to fall further.
And it’s hard to profitably restructure a balance sheet when a company needs to sell assets quickly and has fewer bankers to find opportunities for the bank to invest in.
It took years for banks like Citigroup and Bank of America to return to profitability after the global financial crisis 15 years ago, and those banks had the benefit of a government-backed backstop to keep them afloat.
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