JPMorgan Chase & Co (JPM.N) announced on Monday that it will purchase the majority of First Republic Bank's (FRC.N) assets for $10.6 billion after the troubled lender was seized by regulators over the weekend. This marks the third major U.S. bank failure in two months and the largest since Washington Mutual in 2008.
JPMorgan, the largest bank in the United States, secured the assets after an auction, which included a loss-share agreement with the U.S. Federal Deposit Insurance Corp (FDIC) on single-family, residential, and commercial loans. However, the deal does not include First Republic Bank's corporate debt or preferred stock.
The transaction allows for an organized failure of First Republic and prevents regulators from having to insure all of the bank's deposits, as they did when two other banks collapsed in March.
Last week, First Republic reported over $100 billion in outflows during the first quarter, adding stress to the banking sector. The industry has faced challenges, including the closure of Silicon Valley Bank and Signature Bank in March and the rescue of Switzerland's Credit Suisse (CSGN.S) by rival UBS (UBSG.S).
First Republic's shares plunged 43.3% in premarket trading on Monday before being halted, while JPMorgan's shares rose 2.7%.
Thomas J. Hayes, Chairman and Managing Member of Great Hill Capital, stated, "The Fed has moved too far, too fast and is breaking things." The U.S. Federal Reserve has continued to raise its benchmark interest rate since last year, despite calls for a pause after the banking turmoil in March.
JPMorgan outbid several competitors, including PNC Financial Services Group (PNC.N) and Citizens Financial Group Inc (CFG.N), in an auction held by U.S. regulators.
The California Department of Financial Protection and Innovation took possession of First Republic, with the FDIC acting as its receiver. The FDIC estimated that the cost to the Deposit Insurance Fund (DIF) would be around $13 billion, with the final cost determined when the FDIC ends the receivership.
JPMorgan has assumed all of the bank's deposits and will repay $25 billion of the $30 billion that large banks deposited with First Republic in March. The acquisition will be managed by JPMorgan's Consumer and Community Banking (CCB) Co-CEOs, Marianne Lake and Jennifer Piepszak.
JPMorgan Chairman and CEO Jamie Dimon said, "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."
Following the deal, JPMorgan expects a one-time, post-tax gain of approximately $2.6 billion, excluding an estimated $2 billion in post-tax restructuring costs over the next 18 months. The bank will maintain a common equity tier one (CET1) ratio in line with its 13.5% Q1 2024 target and preserve healthy liquidity buffers.
The 84 offices of the failed bank in eight states will reopen as branches of JPMorgan Chase Bank starting Monday. Since 2021, JPMorgan has acquired over 30 companies in deals totaling more than $5 billion.
