Global leader in financial services offering solutions to the world’s most important corporations, governments, and institutions, JP Morgan Chase, has acquired First Republic Bank after it collapsed, making it the fourth bank failure this year.
Before the collapse of First Republic Bank, it had reported on Monday that its deposits fell 41% in the first quarter, sending its stock to record lows. Also, shares fell by nearly 30%. The bank stock trading was stopped numerous times as its rapid decline triggered volatility-triggered timeouts on the New York Stock Exchange.
The bank’s earnings report revealed it had lost $100 billion in deposits in the first quarter (Q1) of 2023. This was fueled in part by panic among clients of regional banks due to the failures of SVB and Signature Bank. First Republic’s quarter-over-quarter deposits had dropped by more than 40 percent to $104.5 billion.
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Following the bank’s inability to stay afloat, it was taken possession by the California Department of Financial Protection and Innovation (DFPI) on Monday, which was followed by a bid from JP Morgan Chase, National Association, Columbus, Ohio, to assume all deposits including all uninsured deposits and all assets of First Republic Bank.
JP Morgan Chase emerged as the winner of the weekend auction for First Republic Bank, which will see it get all of the ailing bank’s deposits and a substantial majority of assets.
Speaking on the acquisition of a substantial majority of assets, deposits and certain other liabilities of First Republic Bank, JPMorgan Chase CEO Jamie Dimon said via a statement,
“Our government invited us and others to step up, and we did. Our financial strength, capabilities, and business model allowed us to develop a bid to execute the transaction in a way to minimize costs to the Deposit Insurance Fund. This acquisition modestly benefits our company overall, it is accretive to shareholders, it helps further advance our wealth strategy, and it is complementary to our existing franchise.”
The acquired First Republic bank will be overseen by JPMorgan Chase’s Consumer and Community Banking (CCB) Co-CEOs, Marianne Lake and Jennifer Piepszak. First Republic bank branches will open as usual, and clients will continue to receive uninterrupted service, including digital and mobile banking capabilities.
As a result of this acquisition, JPMorgan Chase expects to:
- Recognize an upfront, one-time, post-tax gain of approximately $2.6 billion, which does not reflect the approximately $2.0 billion of post-tax restructuring costs anticipated over the next 18 months.
- Remain very well-capitalized with a CET1 ratio consistent with its 1Q 24 targets of 13.5% and maintain healthy liquidity buffers.
Following the acquisition of First Republic Bank, shares of JP Morgan rose 2.14 percent, meanwhile, shares of several regional lenders fell on Monday after the collapse. 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 from U.S lenders.
It is worth noting that after the collapse of Silicon Valley Bank and Signature, First Republic appeared to have weathered the initial storm when JPMorgan Chase led an 11-bank team in depositing $30 million, a move taken to reassure deposition that the bank would honor further withdrawals.
Based in San Francisco, First Republic catered to high-net-worth individuals, and a significant portion of its deposits were uninsured. Before it collapsed, the bank had planned to strengthen its business by increasing insured deposits and reducing its borrowings from the Federal Reserve Bank. The bank had also intended to reduce its workforce and cut executive pay.