First Republic Bank, headquartered in San Francisco, California, caters mainly to wealthy clients with account balances above the $250,000 deposit threshold backed by the Federal Deposit Insurance Corporation. The company saw customers withdraw their funds in recent weeks as the recent implosions of Silicon Valley Bank and Signature Bank rattled account holders, prompting FDIC officials to secure insured and uninsured deposits at the two failed companies to decrease the risk of bank runs at other institutions.
JPMorgan Chase, already the largest bank in the United States and the largest bank in the world by market capitalization, will acquire all of the $103.9 billion in deposits and “substantially all” of the $229.1 billion in assets maintained by First Republic Bank, according to a statement from the FDIC, which said that the resolution of First Republic Bank involved a “highly competitive bidding process.” The offices controlled by First Republic Bank will open on Monday as branches of JPMorgan Chase, where depositors can continue conducting business.
“Our government invited us and others to step up, and we did,” JPMorgan Chase CEO Jamie Dimon said in a statement. “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.”
FDIC officials agreed to a loss share agreement with respect to single-family residential mortgages and commercial loans, while JPMorgan Chase will not assume First Republic Bank corporate debt or preferred stock.
The Deposit Insurance Fund, which the FDIC finances with bank fees and uses to cover insured deposits after the collapse of financial institutions, will lose $13 billion as a result of the First Republic Bank implosion, adding to the nearly $20 billion decrease incurred amid the failures of Silicon Valley Bank and Signature Bank.
The FDIC takeover and JPMorgan Chase acquisition comes days after the first quarter earnings report for First Republic Bank showed that deposits at the company had decreased from $176 billion on December 31 to $104 billion on March 31. The latter amount of deposits included a $30 billion loan provided by large financial institutions such as Wells Fargo, Bank of America, and Citigroup, as well as JPMorgan Chase, a deal the federal government enabled to maintain the solvency of First Republic Bank.
Silicon Valley Bank was acquired by First Citizens Bank at the end of last month; the company purchased $72 billion of Silicon Valley Bank’s assets at a discount of $16.5 billion, while $90 billion remained with the FDIC. New York Community Bancorp meanwhile acquired Signature Bank for more than $38 billion. Officials at the Federal Reserve said during a meeting last month that the turmoil in the financial system, which started with Silicon Valley Bank, warrants a recession forecast for the end of the year, according to minutes released by the Federal Open Market Committee and the Federal Reserve Board of Governors.