First Republic Bank, the San Francisco-based financial institution, has been purchased by JPMorgan Chase Bank, National Association, after the California Department of Financial Protection and Innovation closed the bank and appointed the Federal Deposit Insurance Corporation (FDIC) as the receiver.
It is unfortunate to note that another American bank has failed, making it the third one to do so since March. First Republic’s collapse was due to unsuccessful attempts to obtain support from other lenders.
A smooth transition for depositors
As part of the agreement, JPMorgan Chase Bank submitted a bid for all deposits held by First Republic, ensuring a seamless transition for customers.
All 84 First Republic offices in eight states will reopen as branches of JPMorgan Chase Bank, and First Republic depositors will become depositors of JPMorgan, gaining full access to their deposits.
The FDIC will continue to insure deposits, and customers won’t need to alter their banking relationships to maintain deposit insurance coverage within applicable limits.
Details of the acquisition
First Republic Bank had approximately $229.1 billion in total assets and $103.9 billion in total deposits as of April 13, 2023. In addition to assuming all deposits, JPMorgan Chase Bank agreed to acquire a substantial majority of the bank’s assets.
JPMorgan and the FDIC are set to engage in a loss-share transaction concerning single-family, residential, and commercial loans previously belonging to First Republic Bank.
Both parties will share in the losses and potential recoveries on the loans covered by the loss-share agreement, which aims to maximize asset recoveries by keeping them in the private sector and minimizing disruptions for loan customers.
The end of First Republic’s struggles
The resolution of First Republic Bank involved a highly competitive bidding process, resulting in a transaction consistent with the least-cost requirements of the Federal Deposit Insurance Act.
The FDIC estimates that the cost to the Deposit Insurance Fund will be around $13 billion, with the final cost determined when the FDIC terminates the receivership.
After the downfall of Silicon Valley Bank in March, First Republic Bank emerged as the most vulnerable institution in the U.S. banking system.
The bank’s business model, which targeted wealthy coastal Americans and offered low-rate mortgages in exchange for cash deposits, unraveled after the collapse.
The collapsed bank’s clients withdrew over $100 billion in deposits, forcing the bank to borrow heavily from Federal Reserve facilities to maintain operations, thus increasing its cost of funding.
JPMorgan Chase’s acquisition of First Republic has been welcomed by Jamie Dimon, the bank’s Chairman and CEO.
He stated that the takeover minimizes costs to the Deposit Insurance Fund and offers modest benefits to the company, being accretive to shareholders, advancing their wealth strategy, and complementing their existing franchise.
With this acquisition, the 38-year history of First Republic Bank comes to a close, and a new chapter begins under the management of JPMorgan Chase Bank, National Association.