WASHINGTON: JPMorgan Chase, the largest bank in the United States, has acquired California’s troubled First Republic Bank in a government-engineered sale aimed at resolving a two-month banking crisis. The sale comes after regulators seized control of the bank, making it the second-largest bank to collapse in US history.
The Federal Deposit Insurance Corporation (FDIC) estimates that it will have to pay approximately $13 billion to cover First Republic Bank’s losses from the deposit insurance fund. The fund is financed through quarterly assessments on insured banks. JPMorgan will assume all of First Republic’s deposits and “almost” all of its assets.
First Republic Bank had been in limbo for weeks following the fall of Silicon Valley Bank, which had raised worries of a domino effect on other regional lenders. The bank disclosed a loss of over $100 billion in deposits in the 1st quarter, leading to doubts about its future viability.
Despite the authorities’ efforts to shore up the First Republic, a rescue plan failed to materialize, and its stock continued to decline. The takeover and sale of First Republic Bank comes around two months after the liquidation of Silvergate Bank and the swift demise of Silicon Valley Bank after it took on excessive interest-rate risk.
JPMorgan’s purchase was result of highly competitive bidding
There were rumors of a rescue package for the First Republic late last week, but nothing concrete until Monday’s announcement from the FDIC. The JPMorgan purchase was the result of “a highly competitive bidding process,” according to the FDIC.
JPMorgan CEO Jamie Dimon said in a statement after the deal was announced, “Our government invited us and others to step up, and we did.” The transaction “modestly benefits our company overall,” JPMorgan said in a news release. Shares of JPMorgan rose 2.4 percent to $141.66 in afternoon trading.
President Joe Biden also praised the government-engineered sale, saying, “These actions are going to ensure that the banking system is safe and sound. All depositors are being protected, whereas shareholders are losing their investments.
And importantly, taxpayers are not the ones that are on the hook.” JPMorgan CEO Jamie Dimon expressed hope that the acquisition would help stabilize the financial system.
