US regulators have seized First Republic (FRC) and sold the majority of its operations to JPMorgan Chase (JPM) in the largest bank failure since the 2008 financial crisis. JPMorgan, the nation's largest bank, has agreed to assume $173 billion in assets, $30 billion in securities, and all of First Republic's $92 billion in deposits. The Federal Deposit Insurance Corporation (FDIC) will share losses on certain loans, providing some protection to JPMorgan if the assets turn bad.
The collapse of First Republic, with $229 billion in assets, marks a significant casualty of the banking system turmoil that began in March. It surpasses the failures of Silicon Valley Bank and Signature Bank, making it the largest bank failure since Washington Mutual in 2008.
While JPMorgan has agreed to protect all depositors of First Republic, the seizure adds to the burden on the FDIC's Deposit Insurance Fund, which absorbs losses when banks fail. The FDIC estimates that the failure of First Republic will cost around $13 billion, on top of the $22 billion from two other failures earlier in the year.
As part of the agreement, JPMorgan will make a cash payment of $10.6 billion to the FDIC and receive $50 billion in loans. The bank anticipates a post-tax gain of approximately $2.6 billion from the deal but expects restructuring costs of $2 billion over the next 18 months.
First Republic's fall triggered a bidding war among banks, with JPMorgan emerging as the successful buyer. The FDIC had invited several big banks to make bids, including Bank of America, PNC Financial Services Group, Citizens Financial Group, and US Bancorp.
JPMorgan CEO Jamie Dimon, known for his role in stabilizing the financial system during the 2008 crisis, once again finds himself at the center of a national banking crisis. In addition to the acquisition of First Republic, JPMorgan had previously purchased Bear Stearns and Washington Mutual.
First Republic's decline began in March when it faced a fight for survival amidst concerns about the stability of regional lenders. The bank had borrowed from the Federal Reserve and the Federal Home Loan Bank while accepting $30 billion in uninsured deposits. However, a loss of over $100 billion in deposits raised doubts about the company's survival, leading to a significant drop in its stock value.
The bank's struggles to adapt to the Federal Reserve's interest rate hikes and its sizable number of uninsured depositors contributed to its downfall. Efforts to replace deposit funding with more expensive borrowing and the disclosure of deposit losses further eroded investor confidence.
As short sellers increased pressure on the bank, First Republic's stock plummeted, and its market value drastically declined. By the end of the year, its stock had dropped 97%, reaching a market value of just $640 million.
The seizure of First Republic by regulators and its subsequent acquisition by JPMorgan highlights the challenges faced by banks during periods of financial instability and the efforts taken to mitigate the impact on depositors and the financial system as a whole.
inputs from / yahoo, NBC,NYT
