Is The Sale Of The First Republic Bank To JPMorgan The End Of A Financial Crisis?

Regulators Sell First Republic Bank To JP Morgan After Seizing It

On Monday 1st May 2023, it was announced that regulators (the Federal Deposit Insurance Corporation) had sold the First Republican Bank to JPMorgan Chase. The sale came after the regulators had seized control of the bank as it was in crisis and collapsing.

The sale of the bank will see JPMorgan taking over its deposits as well as most of its assets. The F.D.I.C is a statement disclosed that JPMorgan will “assume all of the deposits and substantially all of the assets of First Republic Bank.”

The move was announced by the regulators hours before the U.S. markets were set to open on Monday. It was also announced that 84 First Republic branches in eight states in the country will reopen as JPMorgan branches.

JPMorgan’s chief executive Jamie Dimon said, “Our government invited us and others to step up, and we did.” He went on to add that the move to purchase the bank is intended “to minimize costs to the Deposit Insurance Fund.”

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Prior to the purchase, JP Morgan was already the largest bank in the United States and as the New York Times reports, the development “could draw political scrutiny from progressive Democrats in Washington.”

The First Republic Bank is the third bank in the country to fail, all within the last two months. The other two are Silicon Valley Bank and Signature Bank in what has been a tumultuous time for the financial industry in the country.

The Downfall Of The First Republic Bank

The demise of the First Republic is similar to that of Silicon Valley Bank and Signature. All failed due to loans and investments that lost billions of dollars in value as a result of the Federal Reserve’s hasty increase in interest rates to combat inflation.

This led to wealthy customers of First Republic, withdrawing their money as soon as they could once it became clear that those assets were suddenly worth significantly less, and investors sold its shares.

This is where trouble would begin for the First Republic Bank. On April 24, the company discloses a plunge of over $100 billion in its first-quarter deposits.

The bank was considering a few tough options to turn around its business. These include the creation of a “bad bank” or the possible sale of its assets. By April 28th the FDIC was ready to place the bank under receivership imminently as Reuters reports.

On April 29th, the FDIC attempted to sell the bank with roughly six banks in the race including PNC Financial Services Group (PNC.N), JPMorgan Chase & Co (JPM.N), and Citizens Financial Group Inc (CFG.N) among others. Then on May 1st, the bank was seized and then sold to JPMorgan Chase & Co.

The sale of the First Republic effectively makes it the second largest bank, by assets, in the country to collapse. The first was Washington Mutual which failed due to the 2008 financial crisis.

According to experts, the fate of the First Republic is a delayed reaction to the turmoil in March which took down SVB, rather than the beginning of a new financial crisis.

The New York Times reports that banking experts claim no other midsize or large lenders are at risk of imminent failure. In support of this take, there are no other stocks that plunged that week as the First Republic’s did.

Other regional lenders, such as PacWest of Los Angeles and Zions Bank of Utah, have stabilized more quickly than the First Republic, and bank analysts do not anticipate another collapse anytime soon.