JPMorgan Chase deal for First Republic will add to earnings while calming regional-bank jitters: analysts

By Steve Gelsi

Acquisition of First Republic Bank will boost JPMorgan's wealth-management unit, analysts say

JPMorgan Chase & Co.'s victory in the competitive auction for First Republic Bank drew praise from analysts as a historic deal that will grow the larger bank's wealth-management franchise.

In the second-largest U.S.-brokered bank deal by assets after the sale of Washington Mutual in 2008, JPMorgan Chase (JPM) announced Monday that it would buy First Republic Bank (FRC) in what CEO Jamie Dimon described as a transaction to put an end to the regional-banking blowup that has dominated the sector since early March.

JPMorgan Chase's stock rose 0.2% on Tuesday morning, while the Dow Jones Industrial Average dropped by 0.4%.

Unlike JPMorgan's acquisition of Washington Mutual and investment bank Bear Stearns during the global financial crisis of 2008, Dimon said, with the First Republic deal JPMorgan Chase will be "getting a very clean bank in the most clean way you can get it."

Also read: How First Republic ended up as the second-largest bank takeover in history after Washington Mutual

UBS analyst Erika Najarian reiterated a buy rating on JPMorgan Chase and said the acquisition of First Republic will provide a "tailwind for [JPMorgan] shares and the elegant solution the sector needed to put acute liquidity fears to bed."

Jefferies analyst Ken Usdin reiterated a hold rating on JPMorgan and said the deal will increase the megabank's earnings per share by about 1%.

"We view the outcome as a positive for the system and additive to [JPMorgan] (especially the wealth franchise)," Usdin said. "Time will tell how client/loan/deposit/assets under management retention will go as far as the earnings per share accretion will play out."

Moody's analyst Peter E. Nerby cited "the complementary fit of First Republic's franchises within the wealth management platform of [JPMorgan] as well as the structural benefits of the [Federal Deposit Insurance Corp.] assisted purchase and assumption transaction that help offset the execution risk."

Moody's affirmed the bank's debt ratings but noted that the deal faces execution risk, such as retaining customer relationships and First Republic's team of wealth advisers.

Odeon Capital analyst Richard Bove upgraded JPMorgan Chase to buy from hold and said the First Republic Bank purchase "may prove to be the best acquisition that JPMorgan has made in a couple of decades."

JPMorgan Chase could realize additional net income of $500 million to $1 billion on an annual basis from gaining First Republic Bank's business, Bove said.

"Given its size, wealth, and management skills, JPMorgan was the best choice to eliminate the problem called First Republic," Bove said. "The bank made this acquisition on a basis that appears to offer very rich rewards over an extended period of time."

-Steve Gelsi

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05-02-23 1005ET

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