JPMorgan to take over First Republic after fourth bank blow-up of the year

By Steve Goldstein and Steve Gelsi

FDIC estimates $13 billion hit to Deposit Insurance Fund

JPMorgan Chase has won the auction to take over fallen First Republic Bank, the Federal Deposit Insurance Corp. announced early Monday morning, making it the third major regional bank to be sold after a bank failure since March.

The deal will see America's largest bank (JPM) assume all the deposits and "substantially all the assets" of First Republic (FRC), which became the fourth U.S. bank to fail this year.

"Our government invited us and others to step up, and we did," said Jamie Dimon, chairman and CEO of JPMorgan Chase, in a statement. The FDIC called it a highly competitive bidding process.

JPMorgan Chase stock rose 3.4%. First Republic stock was halted and will not trade again, in the same fate as the other FDIC bank takeovers last month of Silicon Valley Bank and Signature Bank.

Formally, the California Department of Financial Protection and Innovation appointed the Federal Deposit Insurance Corporation (FDIC) as receiver for First Republic, as announced early Monday by the government.

As part of the deal, First Republic depositors -- which include 11 leading banks that made $30 billion in deposits in a show of confidence -- will have full access to their money. All 84 First Republic offices will reopen as JPMorgan Chase later on Monday, the government said.

First Republic marks the third S&P 500 component to go bust after Silicon Valley Bank and Signature Bank last month. New York Community Bancorp (NYCB) is buying Signature Bank and Silicon Valley Bank is being bought by First Citizens Bancshares Inc. FCNC, in two deals brokered by the FDIC. Silvergate Bank closed down and liquidated last month.

The First Republic Bank sale is also the second-largest FDIC-brokered sale in history after Washington Mutual bank and its $307 billion in assets on its balance were acquired by JPMorgan Chase in 2008. As of Dec. 31, First Republic was ranked as the 14th largest bank in the U.S. by the Federal Reserve with consolidated assets of nearly $213 billion.

Asked if he thinks more banks will suffer the same fate, Dimon said he doesn't have a crystal ball, but said the U.S. banking system remains stable as shown by earnings updates from banks in the past couple of weeks. Few other banks have the same exposure to uninsured deposits that First Republic did with its wealthy clientele, he said.

"This part of the crisis is over," Dimon said. "For now, let's take a deep breath."

As of April 13, First Republic Bank had approximately $229.1 billion in total assets and $103.9 billion in total deposits.

The announcement was made early Monday after 800 JPMorgan employees took part in due diligence efforts after fears grew over recent weeks that First Republic faced a fate similar to that of Silicon Valley Bank.

Citi analyst Keith Horowitz said the deal "makes sense" strategically for JPMorgan and said it's, "all about accelerating the growth in the U.S. wealth management business where First Republic has been able to gain share in the past."

Macrae Sykes, portfolio manager of the Gabelli Financial Services Opportunities ETF GABF, said it was "nice to see a resolution" adding that First Republic will be in "strong hands" with its buyer.

"Multiple bidders shows the industry is potentially equipped to handle future issues that may arise from further duration risk on bank balance sheets," said Sykes."I don't believe this is similar to 2008 since that was a much more macro-leveraged situation around credit."

Since 2001, the U.S. has seen 562 bank failures -- or an average of 26 per year, he said.

Tech-centered Silicon Valley Bank collapsed following an old-fashioned bank run, after higher interest rates choked off tech-industry dollars and financing and pulled the value on the bank's bond investments lower.

Also: Silicon Valley Bank: Here's what happened to cause it to collapse

Similar to SVB, First Republic sought wealthier clients, who were likelier to have more than the $250,000 insured limit in their accounts. But that approach to doing business stirred more anxiety about what would happen to the bank if a rescue didn't materialize, and consumers rushed to yank their cash in a flight toward safety or better returns.

The FDIC will enter a loss-sharing agreement with JPMorgan on single-family, residential and commercial loans. The government will take 80% loss coverage for seven years in the case of those loans and five years for commercial loans. JPMorgan said the FDIC will provide $50 billion of five-year, fixed-rate term financing.

The FDIC estimates that the cost to the Deposit Insurance Fund will be about $13 billion. JPMorgan said it was making a payment of $10.6 billion to the FDIC.

JPMorgan said it will recognize an upfront, one-time, post-tax gain of approximately $2.6 billion, which does not reflect the approximately $2.0 billion of post-tax restructuring costs anticipated over the next 18 months.

The transaction is expected to be modestly EPS accretive and generate more than $500 million of incremental net income per year, JPMorgan said.

JPMorgan said it would not be assuming First Republic's corporate debt or preferred stock.

PNC Financial Services (PNC) stock fell 4.7%. The bank was reportedly one of the other First Republic suitors. Citizens Financial (CFG), another bank reportedly bid on First Republic, dropped 5.2%. The KBW Nasdaq Bank Index dipped fractionally.

-- Bill Peters contributed to this story.

-Steve Goldstein

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05-01-23 1303ET

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