Ayyyeee… What’s Goodie Everyone. So I got some tea and it involves First Republic bank and JP Morgan.
Federal regulators have seized First Republic Bank and sold its assets and deposits to JPMorgan Chase Bank in a deal. Under the deal, JPMorgan acquires “substantially all” First Republic assets and agrees to assume responsibility for all of its deposits, including those above the federal insurance limit of $250,000 per account. First Republic had about $229.1 billion in assets and $103.9 billion in deposits.
JP Morgan is not assuming First Republic’s corporate debt or preferred stock, it said in a statement.
JPMorgan personnel are now reaching out to First Republic customers, CEO Jamie Dimon said.
In an analyst call Monday morning, Dimon said there’s no guarantee other banks won’t suffer in the future. But the emergency from this spring has been taken care of, he said.
“This part of the crisis is over,” Dimon said.
Federal regulators approached JPMorgan about bidding on First Republic’s assets, said Jeremy Barnum, JPMorgan’s chief financial officer. The bank “did not seek out this deal,” Barnum told reporters Monday. Dimon reiterated that the broader banking system was sound and said the deal would stabilize the system after the country’s third bank failure in two months. Still, Dimon acknowledged that as interest rates continue to rise, the economy is not immune to consequences or stress.
“Hopefully people will be properly prepared for it,” Dimon said. In March, JP Morgan was one of the banks that put billions of dollars into beleaguered First Republic, as regulators and the industry scrambled to contain a crisis that had led to the failures of Silicon Valley Bank and Signature Bank. Barnum said the ultimate demise of First Republic wasn’t a sign that that effort failed. Rather, it helped buy time “when time was needed.”
First Republic’s failure is expected to cost the FDIC about $13 billion, the agency said. The money will come from the FDIC’s deposit insurance fund, which insured banks pay into every quarter. First Republic’s 84 offices in eight states will reopen as branches of JPMorgan, and depositors will be able to access all of their money when they open Monday.
The closure and sale of First Republic comes seven weeks after the abrupt failure of Silicon Valley Bank in California prompted an extraordinary federal rescue effort aimed at averting a wider financial crisis.
In recent weeks, the bank hemorrhaged more than $100 billion in deposits. As investors became more sensitive to banking risks, shares of First Republic lost 97 percent of their value. “Normally, regulators don’t react to stock prices. But this one fell so precipitously. It raised public concern and encouraged regulators to act to preserve public confidence,” said John Popeo, a partner at the Gallatin Group, a financial consultancy, and a former FDIC attorney.
Like the failure of SVB and Signature Bank of New York, First Republic’s collapse is likely to raise questions about the performance of federal regulators. On Friday, reports from the Fed and the FDIC blamed bank executives in both cases for mismanaging their operations and said federal supervisors had been lax. Among the attractions for JPMorgan in acquiring First Republic is the failed bank’s wealth management business, with $289.5 billion in assets. That unit, which provides investment services for affluent clients, produced $223 million in fee revenue during the first quarter.
Continued banking upheaval poses a dilemma for the Federal Reserve. The central bank has been raising interest rates for more than a year, aiming to slow the economy and curb inflation. The fight against rising prices is not yet won, but higher rates are causing cracks to appear in the banking system.
All banks with more than $50 billion in assets are required to file with the FDIC a “resolution plan” designed to provide insight into how the institution could be wound down in the event it failed.
In its most recent plan, submitted at the end of last year, First Republic said that “its focused business model, uncomplicated structure and conservative market share” would make it easy to wind down in a crisis. “First Republic believes that a resolution of the Bank by the FDIC would not require the use of any extraordinary government support and would substantially mitigate the risk that the failure of the Bank could have a serious adverse impact on the financial stability of the United States,” the bank said in the December 2022 document.
At the time, the bank called the prospect of its failure “highly unlikely.”
Credit: The Washington Post, The New York Times.