May 1, 2023
Regulators seized First Republic Bank (FRC.N) and sold its assets to JPMorgan Chase & Co (JPM.N) on Monday, in a deal to resolve the largest U.S. bank failure since the 2008 financial crisis and draw a line under a lingering banking turmoil.
First Republic was among regional U.S. lenders most battered by a crisis in confidence in the banking sector in March, when depositors fled en masse from smaller banks to giants like JPMorgan as they panicked over the collapse of two other mid-sized U.S. banks.
The bank had limped along since then, but investors fled again last week when it disclosed more than $100 billion in outflows in the first quarter and a plan to explore new options.
Barely a week later, California regulators on Monday seized First Republic and put it into FDIC receivership alongside the sale of its assets, marking the third major U.S. bank failure in two months and the largest since Washington Mutual in 2008.
Shares of JPMorgan rose 2% on Monday, while those of mid-tier banks fell and the KBW Regional Banking Index (.KRX) closed down 2.7%. First Republic shareholders will be wiped out in the transaction, Wedbush analysts said. The bank’s shares tumbled 43.3% in premarket trading on Monday before they were halted.
JPMorgan will pay $10.6 billion to the U.S. Federal Deposit Insurance Corp (FDIC) as part of the deal to take control of most of the San Francisco-based bank’s assets and get access to First Republic’s coveted wealthy client base.
“Our government invited us and others to step up, and we did,” said Jamie Dimon, JPMorgan Chairman and CEO, who had been a key player in the 2008 financial crisis as well and bought Bear Stearns in a weekend rescue.
The deal will cost FDIC’s Deposit Insurance Fund about $13 billion, according to the regulator’s initial estimate.
U.S. President Joe Biden on Monday hailed the deal for protecting depositors without making taxpayers foot the bill. He repeated his call for stronger bank regulation and supervision.
“These actions are going to make sure that the banking system is safe and sound,” Biden told an event at the White House. “Critically, taxpayers are not the ones that are on hook.”
The White House praised “decisive” actions taken by regulators to protect depositors and keep the banking system stable. White House press secretary Karine Jean-Pierre said the actions would also ensure that First Republic, which she said was “severely mismanaged,” would be held accountable.
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