First Republic Bank (NYSE:FRC)’s deposits are to be taken over by JPMorgan Chase & Co (NYSE:JPM) following a weekend deal brokered by US banking sector regulators after negotiations for a rescue plan failed.
The California Department of Financial Protection and Innovation (DFPI) announced early Monday that regulators have taken possession of the San Francisco-based lender. In a statement, the DFPI said it had appointed the Federal Deposit Insurance Corporation (FDIC) as receiver of First Republic Bank. Following a weekend auction process, the FDIC accepted a bid from JPMorgan Chase Bank, National Association to assume all First Republic Bank’s deposits, including all uninsured deposits, and substantially all its assets.
The ailing regional bank’s shares have tumbled following its disclosure a week ago that its deposits fell by about $100 billion last month, with customers rushing to withdraw cash fearing the bank would fold in the wake of the Silicon Valley Bank (SVB) collapse. It becomes the third bank to fail in two months following SVB and Signature Bank.
“To protect depositors, the FDIC is entering into a purchase and assumption agreement with JPMorgan Chase Bank, National Association, Columbus, Ohio, to assume all of the deposits and substantially all of the assets of First Republic Bank,” the FDIC said in a statement.
As part of the deal, the FDIC said First Republic Bank’s 84 offices in eight states will reopen as branches of JPMorgan Chase Bank, National Association, with all First Republic Bank’s depositors becoming depositors of JPMorgan Chase Bank, National Association.
According to the DFPI, First Republic Bank had total assets of approximately $229 billion and total deposits of approximately $104 billion as of April 13, 2023.
"The failure of First Republic Bank was mostly caused by ultra-high US interest rates and a lack of adequate capital requirements imposed by regulators. These factors contributed to the failure of SVB and Signature Bank in the United States," commented Naeem Aslam, chiefi investment officer at Zaye Capital Markets.
"The Fed will not modify its monetary policy position, notwithstanding the failure of First Republic Bank, whose 84 offices now retain the JP Morgan moniker. The Fed is still anticipated to raise interest rates by at least 25 basis points this week, ahead of Friday's US employment report."
The bank's shares fell a further 43% on Friday and were down 42% in after hours trading before the regulators stepped in.
-- Updated with analyst comment --
Contact the author at stephen.gunnion@proactiveinvestors.com