American multinational financial services company JPMorgan Chase has acquired a substantial stake in failed First Republic Bank after regulators took control of the lender. Under the deal signed with the regulators JPMorgan Chase & Co has taken over a majority of the assets and assumed the deposits and certain other liabilities of First Republic Bank from the Federal Deposit Insurance Corporation (FDIC).
JPMorgan Chase also offered full protection to all deposits - insured and uninsured - bringing its financial strength, capabilities and capital to support the US banking system and First Republic.
First Republic Bank’s assets include approximately $173 billion of loans and approximately $30 billion of securities. The bank has approximately $92 billion of deposits, including $30 billion of large bank deposits, which will be repaid post-close or eliminated in consolidation, as per the deal.
Regulators took control of First Republic Bank after rescue efforts to repair the damage from bad investments and the run on deposits that had shaken up the smaller lender. JPMorgan Chase & Co. will now purchase First Republic Bank.
Jamie Dimon, chairman and CEO of JPMorgan Chase, said the decision to acquire the failed First Republic Bank followed an invitation by the government and others to step in. “Our financial strength, capabilities and business model allowed us to develop a bid to execute the transaction in a way to minimise costs to the Deposit Insurance Fund,” he said, adding, “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.”
The transaction followed the FDIC’s competitive bidding process. Under the deal, FDIC will provide loss share agreements covering acquired single-family residential mortgage loans and commercial loans, as well as $50 billion of five-year, fixed-rate term financing.
A statement issued by the California Department of Financial Protection and Innovation, JPMorgan would "assume all deposits, including all uninsured deposits, and substantially all assets" of First Republic.
The California regulator had named the Federal Deposit Insurance Corp as the San Francisco-based bank's receiver. “Deposits are federally insured by the FDIC subject to applicable limits,” the DFPI said in its statement.
JPMorgan Chase said it is not assuming First Republic’s corporate debt or preferred stock.
First Republic branches remained open from Monday, 1 May, and clients continued to receive uninterrupted service, including digital and mobile banking services.
Under the transaction, JPMorgan Chase expects to recognise an upfront, one-time, post-tax gain of approximately $2.6 billion, which excludes approximately $2.0 billion of post-tax restructuring costs anticipated over the next 18 months.
JPMorgan Chase said it will keep First Republic Bank very well capitalised with a CET1 ratio consistent with its 1Q 24 target of 13.5 per cent and maintain healthy liquidity buffers
The transaction is expected to be modestly EPS accretive and generate more than $500 million of incremental net income per year, not including the approximately $2.6 billion one-time post-tax gain or approximately $2.0 billion of post-tax restructuring costs expected over the course of 2023 and 2024.
The acquired First Republic businesses will be overseen by JPMorgan Chase’s Consumer and Community Banking (CCB) Co-CEOs, Marianne Lake and Jennifer Piepszak.
“First Republic has built a strong reputation for serving clients with integrity and exceptional service,” said Lake and Piepszak. “We look forward to welcoming First Republic employees. As always, we are committed to treating employees with respect, care and transparency.”
First Republic Bank, a commercial bank and provider of wealth management services headquartered in San Francisco, California, catered to high-net-worth individuals and operated 93 offices in 11 states, primarily in New York, California, Massachusetts, and Florida.
US-based financial services giant JPMorgan Chase & Co, with operations worldwide, had $3.7 trillion in assets and $303 billion in equity capital as of 31 March 2023. The Firm is a leader in investment banking, financial services for consumers and small businesses, commercial banking, financial transaction processing and asset management.