First Republic Bank was taken over by authorities and will be bought by JPMorgan Chase & Co. after rescue measures failed to reverse the harm caused by bad investments and depositor runs that roiled smaller institutions.
According to the California Department of Financial Protection and Innovation, JPMorgan will “assume all deposits, including all uninsured deposits, and substantially all assets” of First Republic.
The Federal Deposit Insurance Corporation was designated as receiver of the San Francisco-based bank by the California regulator. “Deposits are federally insured by the FDIC subject to applicable limits,” according to the DFPI.
The merger increases the size of JPMorgan Chase, the nation’s biggest bank, a result that government officials have worked hard to prevent in the past. Under normal circumstances, JPMorgan’s size and existing share of the US deposit base would prevent it from expanding its deposit base further due to US regulatory restrictions. Consolidation in the banking industry and other areas has also irritated key Democratic politicians and the Biden administration.
Another complication: JPMorgan played a prominent role during the First Republic’s difficulties. The bank assisted its smaller competitor in its search for strategic options, and CEO Jamie Dimon was instrumental in rallying bank executives to put $30 billion in deposits into First Republic to shore up its finances after massive withdrawals in March.
First Republic specialises in private banking for the wealthy, similar to Silicon Valley Bank, which collapsed in March and was centred on venture capital businesses. According to First Republic history, Chairman Jim Herbert founded the company in 1985 with fewer than ten employees. By July 2020, the bank expects to be the 14th-largest in the United States, with 80 branches in seven states. At the end of last year, it employed over 7,200 people.
First Republic, like other regional lenders, found itself squeezed when the Federal Reserve raised interest rates to combat inflation, reducing the value of bonds and loans purchased while interest rates were low. Meanwhile, depositors fled, first in search of higher returns and then in fear as concerns about the First Republic’s health spread.
As a consequence, a capital hole was created large enough to dissuade a full-scale rescuer from coming forward. The bank’s first-quarter report and news of its plan to sell assets and organise a rescue sparked further alarm in April. The bank said that it will lay off up to 25% of its workforce, reduce outstanding debts, and reduce non-essential activity.
On March 16, eleven US banks pledged $30 billion in new deposits to keep First Republic viable, with JPMorgan, Bank of America Corp., Citigroup Inc., and Wells Fargo & Co. each contributing $5 billion. As part of a strategy designed with US authorities, Goldman Sachs Group Inc., Morgan Stanley, and other institutions gave lesser sums. First Republic also used the Federal Home Loan Bank Board and a Federal Reserve liquidity line.
It was insufficient. The stock, which peaked at $170 in March 2022, had dropped below $5 by late April. The failure of First Republic would endanger not just common stockholders but also around $3.6 billion in preferred stock and $800 million in unsecured notes.
Over the years, the bank has been bought and sold several times, with Merrill Lynch & Co. paying $1.8 billion to acquire First Republic in 2007. When Bank of America purchased Merrill Lynch in 2009, ownership changed hands again in mid-2010, when investment firms including General Atlantic and Colony Capital paid $1.86 billion for First Republic and then took it public.