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First Republic Bank Foreclosed, Sold To JP Morgan – The Morning Call

Ken Sweet (AP Business Writer)

NEW YORK (AP) — Regulators seized the troubled First Republic Bank early Monday morning, making it the second-largest bank failure in U.S. history and forced all deposits and their assets to end the chaos. We quickly sold most of it to JP Morgan Chase. raises questions about the health of the US banking system.

A mid-sized bank that failed within two months is third. The only major bank failure in U.S. history was Washington Mutual, which went bankrupt during the 2008 financial crisis, and in a similar government-led deal he was acquired by JP Morgan.

Jamie Dimon, Chairman and CEO of JPMorgan Chase, said:

First Republic’s 84 branches opened Monday as branches of JPMorgan Chase, which acquired $92 billion in bank deposits and $203 billion in loans and other securities. The bank’s shareholders are likely to be wiped out as part of the deal.

Dimon said on a conference call with both reporters and investors that he believed “this part of the (banking) crisis is over.” Other midsize banks reported results last week, with most showing stable deposits and relatively healthy earnings. The outlier was the First Republic.

Once the envy of the banking industry, First Republic has struggled since the failures of Silicon Valley Bank and Signature Bank in March. The bank was catering to wealthy customers and accepting large amounts of uninsured deposits, deposits exceeding his $250,000 cap set by the FDIC.

As was the case with Silicon Valley Bank and Signature Bank, customers with large First Republic accounts quickly withdrew their funds at the first sign of trouble.

“Too many (First Republic) customers believe their true loyalty stems from their own fears,” Janney Montgomery Scott analyst Timothy Coffey said in a note to investors. ,” he wrote.

A coalition of a dozen banks put together a $30 billion financing package for First Republic last month that appeared to stave off the outflow of deposits for some time. But it has become increasingly clear that the First Republic is in a period of borrowing. I had to find a buyer or find a new form of financing to replace my off-bank deposits.

First Republic planned to sell underperforming assets, including low-interest mortgages offered to wealthy customers. It also announced plans to lay off his quarter of its total workforce of about 7,200 in the second half of 2022.

JPMorgan Chief Financial Officer Jeremy Barnum said on a conference call with reporters that the $30 billion package “buyed us time when we needed it” for First Republic.

Last Monday, First Republic stunned analysts and investors when it reported its first quarter results, revealing that $100 billion in deposits had flowed out of banks. The company’s management did not answer any questions from analysts on the earnings call. First Republic’s stock price plummeted by more than 50% the day after he reported.

By the middle of last week, it became clear that government intervention in the First Republic was necessary. Treasury officials asked banks to bid for First Republic, and bankers and regulators worked throughout the weekend to find a way forward.

JPMorgan Chase, the country’s largest bank with a reputation as a dealmaker during the crisis, has once again become the government’s go-to bank. Treasury officials last month enlisted JP Morgan to lead a $30 billion bailout package. In 2008, Dimon was Washington’s go-to banker for finding a private solution to the banking crisis, and JP Morgan bought both Bear Stearns and Washington Mutual.

The Federal Reserve and FDIC, along with the Office of the Comptroller of the Currency, regulate the banking industry and could face renewed criticism of their treatment of the First Republic. The two men acknowledged in separate reports on Friday that lax supervision played a role in the failures of Silicon Valley Bank and Signature Bank.

As First Republic increased its deposits, it used them to make more and more low-interest loans to its customers. The value of those loans declined when the Federal Reserve sharply raised interest rates last year.

“These banks were allowed to get too big too quickly when interest rates were low,” Coffey said in an interview.

It could also raise questions about the size of JPMorgan Chase, by far the largest “too big to fail” institution in the world with over $3 trillion in assets.

Regulators have “allowed the nation’s largest bank to get even bigger.

JP Morgan is so big that the law doesn’t allow it to buy First Republic. Because no bank can exceed 10% of the US deposit market share. JP Morgan could only intervene because the First Republic failed.

JP Morgan said in a statement that a deal with First Republic would benefit both the financial system and the company. As part of the agreement, the FDIC will share losses with his JPMorgan on First Republic’s loans.

JP Morgan expects the addition of First Republic to add $500 million to annual net income, but costs to integrate First Republic into its business will rise to $2 billion over the next 18 months I expect it to be.


Matt O’Brien, AP Press Staff Writer in Providence, Rhode Island, and Christopher Rugaber, AP Economics Writer in Washington, contributed to this report.

https://www.mcall.com/2023/05/01/first-republic-bank-seized-sold-in-fire-sale-to-jpmorgan/ First Republic Bank Foreclosed, Sold To JP Morgan – The Morning Call

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