Regulation
Regulators Seize First Republic and Confirm Lender’s Takeover by JPMorgan
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US banking giant JPMorgan is set to acquire First Republic after winning the bid to practically buy the battered bank and assume control of all of its assets. The California Department of Financial Protection and Innovation communicated through a May 1 notice on its website that it had shut down the bank, with deposits being taken over by the multinational banking institution.
“First Republic Bank was closed today by the California Department of Financial Protection and Innovation. To protect depositors, the Federal Deposit Insurance Corporation (FDIC) is entering into a purchase and assumption agreement with JPMorgan Chase Bank,” the press release read.
The early Monday news comes after discussions to keep the bank afloat throughout last week failed to bear any fruits leading to a race between several banking groups seeking to command the ailing Californian bank.The federal regulator opened up a bidding window going into the weekend for interested groups to come forward with the deadline elapsing on Sunday.
Terms of the purchase and assumption agreement
JPMorgan's winning bid encompassed wholly acquisition of First Republic Bank’s deposits with all of FRC's 84 offices in eight states set to resume operations under the former's name. Others that reportedly submitted bids in the government-run sale include Financial Services Group and Citizens Financial Group. Worth noting, the takeover is not expected to breed any interferences to banking services as the agreement involves transfer of customers (and their records) who will henceforth become new depositors of JPMorgan Chase Bank.
“Customers of First Republic Bank should continue to use their existing branch until they receive notice from JPMorgan Chase Bank that it has completed systems changes to allow other JPMorgan branches to process their accounts as well.”
Last week, First Republic's share bled for three consecutive days to $4.92 on Wednesday before sliding lower to $3.20 as of market close on Friday.The steep decline was fueled by reports of customers withdrawing $100 billion of deposits in March from the San Francisco-based lender.
First Republic deposits fell by $72 billion across Q1
More concerns arose among investors and observers alike following the release of the Q1 earnings results on April 24 which painted a discouraging picture. Deposits totaled $104.5 billion in the first quarter against expectations of $136 billion and down from $176 billion in the last quarter of 2022. In responses to this slump, the lender said it plans to trim its staff with a quarter of them set to be affected. The regulators handling the acquisition estimated the value of First Republic's asset to $229.1 billion as of April 13, against $103.9 billion (less than half) in deposits.
“The FDIC as receiver and JPMorgan Chase will share in the losses and potential recoveries on the loans covered by the loss–share agreement […] The loss–share transaction is projected to maximize recoveries on the assets by keeping them in the private sector. The transaction is also expected to minimize disruptions for loan customers,” the Monday statement clarified.
Notably, the haste by regulators to intervene and quickly deal with the situation is likely an attempt to prevent any weakness in the country's banking industry following similar incidents of turmoil last month. The federal agency expects the cost to the Deposit Insurance Fund to come to $13 billion, but the final figure will not be known until the receivership is concluded.
The worst may not be over in the banking space
First Republic received a bailout in March, after JPMorgan lobbied 11 banks including Bank of America, Citigroup, and Wells Fargo to extend a $30 billion financial hand. The California-based lender now joins a forming list of crypto-linked banks that have gone into receivership by the Federal Deposit Insurance Corporation. Signature and Silicon Valley Banks (SVB) both collapsed earlier in mid-March less than three days apart. The latter was first to be closed down on March 10 and was acquired by First–Citizens Bank & Trust company. Two days later on March 12, New York-based Signature bank tumbled as well, and was acquired by Flagstar, a division of the New York Community Bancorp.
