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JPM Swallows First Republic Poison Pill

PUBLISHED

2023-05-02

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First Republic bank finally couldn’t be rescued at the weekend and was seized by regulators and most of its loans and deposits were sold to JP Morgan, making it the second largest bank failure in American history by assets.

Its collapse came despite receiving a $US30 billion lifeline from 11 of the country’s largest banks in March.

First Republic had struggled to survive after SVB and Signature banks had failed in March - after Silvergate, which shut its doors after it lost tens of billions of dollars in deposits in a wave of collapses among failed cryptos.

California's Department of Financial Protection and Innovation (DFPI) said on Monday that regulators had seized First Republic Bank and appointed the Federal Deposit Insurance Corporation (FDIC) as receiver of First Republic and said it accepted a bid from JPMorgan Chase Bank, to assume all deposits and most of its loan book.

JPMorgan said it would take $US173 billion of loans and about $US30 billion of securities of First Republic Bank and $US93.5 billion of deposits. JPMorgan is not assuming the bank's corporate debt or preferred shares.

First Republic Bank shares tumbled another 36% in premarket trading Monday but the shares were halted before the official session opened. The shares had lost 97% of their value this year.  It had lost 75% last week alone.

JPMorgan was one of several interested buyers including PNC Financial Services Group, and Citizens Financial Group Inc, which submitted final bids on Sunday in an auction run by US regulators.

The news calmed Wall Street - The Dow dipped 46.46 points, or 0.14%, to end the session at 34,051.70; the S&P 500 eased 0.04% to close at 4,167.87. The Nasdaq, dipped 0.11% to end at 12,212.60.

Gold fell, with the Comex front month price off 0.4% at $US1,991.30 by the close, so no threat seen by gold bugs.

The FDIC estimated in a statement that the cost to the Deposit Insurance Fund would be about $1US3 billion. The final cost will be determined when the FDIC terminates the receivership.

"Our government invited us and others to step up, and we did," Jamie Dimon, Chairman and CEO of JPMorgan said in the statement.

"Our financial strength, capabilities and business model allowed us to develop a bid to execute the transaction in a way to minimise costs to the Deposit Insurance Fund."

JPMorgan said it expected to achieve a one-time, post-tax gain of approximately $US2.6 billion after the deal which did not reflect an estimated $US2 billion dollars of post-tax restructuring costs likely over the next 18 months.

It said the bank would be "very well-capitalized" after with a common equity tier one (CET1) ratio consistent with its first quarter 2024 target of 13.5%, and maintain healthy liquidity buffers.

The failed bank's 84 offices in eight states re-opened as branches of JPMorgan Chase Bank from Monday.

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