JPMorgan Chase Bank NA is to take over all deposits and most of the assets of troubled First Republic Bank, the US Federal Deposit Insurance Corp (FDIC) said early yesterday.
California regulators closed First Republic and appointed the FDIC as receiver, it said in a statement.
JPMorgan Chase is to assume “all of the deposits and substantially all of the assets of First Republic Bank,” it said.
Photo: Reuters
First Republic Bank’s 84 branches in eight states were yesterday to reopen as branches of JPMorgan Chase Bank.
Regulators had been working to find a way forward before US stock markets opened yesterday.
San Francisco-based First Republic has struggled since the collapses of Silicon Valley Bank and Signature Bank in early March. They added to worries that the bank might not survive as an independent entity for much longer.
Shares in First Republic closed at US$3.51 on Friday, a fraction of the about US$170 a share it traded for a year earlier. It fell further in afterhours trading.
The bank reported total assets of US$233 billion as of March 31. At the end of last year, the US Federal Reserve ranked First Republic 14th in size among US commercial banks.
Before Silicon Valley Bank failed, First Republic had a banking franchise that was the envy of most of the industry.
Its clients — mostly the rich and powerful — rarely defaulted on their loans. The bank has made much of its money making low-cost loans to the rich, which reportedly included Meta Platforms Inc CEO Mark Zuckerberg.
Flush with deposits from the well-heeled, First Republic saw total assets more than double from US$102 billion at the end of first quarter in 2019, when its full-time workforce was 4,600.
The vast majority of First Republic’s deposits, like those in Silicon Valley and Signature Bank, were uninsured — that is, above the US$250,000 limit set by the FDIC.
That made analysts and investors worried. If First Republic were to fail, its depositors might not get all their money back.
Those fears were crystalized in the bank’s recent quarterly results.
It said that depositors pulled more than US$100 billion out of the bank during last month’s crisis.
First Republic said that it was only able to stanch the bleeding after a group of large banks stepped in to save it with US$30 billion in uninsured deposits.
Now First Republic is in need of a bigger fix.
“Getting the bank in the hands of a larger one is the best possible economic outcome,” said Steven Kelly, a researcher at the Yale School of Management Program on Financial Stability. “First Republic has lots of knowledge about its customers and has been a profitable bank for its entire history — but its business model is not stable. It needs a big bank balance sheet behind it.”
Kelly said that other options, such as government control or continuing to try to survive on its own, would see its value continue to disappear, along with credit and economic growth.
“A successful absorption into a big bank would provide a proper, stable home for the firm to continue to provide its value proposition to the economy,” Kelly said.
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