First Republic Folds As Banking Crisis Claims Third Victim: JPMorgan To Buy Deposits, Assets

Zinger Key Points
  • FRC sales to JPMorgan followed competitive bidding process and resulted in a transaction consistent with least-cost requirement : FDIC
  • FDIC and JPMorgan to share losses and potential recoveries on the loans covered by the agreement.

The First Republic Bank FRC saga is winding to a close with the Federal Deposit Insurance Corporation confirming the shuttering of the bank and the sale of its assets to JPMorgan Chase & Co. JPM.

What Happened: San Francisco-based First Republic was closed on Monday by the California Department of Financial Protection and Innovation, with the FDIC appointed as receiver, a statement released by the federal regulator said.

FDIC said it is entering into a purchase and assumption agreement with JPMorgan Chase Bank to assume all the deposits and substantially all of the assets of First Republic. This is done in a bid to protect the depositors, it added.

As part of the deal, First Republic's 84 offices in eight states will reopen as branches of JPMorgan Chase Bank on Monday during normal businsess hours. All depositors of the regional bank will henceforth be depositors of its bigger peer.

As of April 13, 2023, First Republic had $229.1 billion in total assets and $103.0 billion in deposits.

FDIC and JPMorgan also entered into a loss-share transaction on single-family, residential and commercial loans it purchased from First Republic. This provides for both sharing losses and potential recoveries on the loans covered by the agreement.

The sale to JPMorgan involved a highly competitive bidding process and resulted in a transaction consistent with the least-cost requirement of the Federal Deposit Insurance Act. The cost to the Deposit Insurance Fund will likely be about $13 billion, the release said.

Why It’s Important: Rumors of the development were floating around since Friday. The FDIC was said to be in negotiations with several banks regarding a potential takeover, with JPMorgan and PNC Financial Services Group, Inc. PNC projected as the frontrunners in the bidding battle.

See Also: Best Regional Bank Stocks

At one point, rumors suggested PNC could clinch the deal as big banks were constrained by the upper deposit ceiling.

Monday’s resolution culminates month-and-a-half survival efforts by First Republic after the shuttering of the Silicon Valley Bank and the Signature Bank lead to run-ins and flight of deposits. This precipitated a liquidity crisis for the regional banks.

First Republic attempted to put its house in order by tapping into its borrowing capacity from the Federal Reserve and suspending dividends on preferred shares. In mid-March, the bank also received $30 billion in uninsured deposits from 11 banks led by JPMorgan under a government-brokered deal.

First-quarter results released in late April showed large-scale deposit erosion.

The stock reflected the travails, and traded at 3.51% at the close of trading on Friday, a far cry from the post-crisis levels of $115. It shed a whopping 51% to $1.72 in premarket trading on Monday, according to Benzinga Pro data.

Read Next: ‘First Republic Vs. Everything Else’: Jim Cramer Defends His Favorite Bank As Stock Tumbles 21% Post Q1 Print

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