First Republic Bank's assets seized, JPMorgan to take over
What's the story
First Republic Bank (FRC), which was on the brink of collapsing in the aftermath of the Silicon Valley Bank (SVB) crisis, has crashed.
The silver lining? Its assets have been seized by Federal Deposit Insurance Corporation (FDIC) and the regulator will sell them to JPMorgan Chase & Co.
FRC is the third major US lender after SVB and Signature Bank, to fall since March.
Finance
Let's take a look at the deal
As per the agreement, JPMorgan will acquire FRC's assets worth around $229.1 billion and deposits of roughly $103.9 billion. FDIC will continue to insure the latter at an estimated cost of $13 billion.
JPMorgan claims that it will acquire $30 billion of securities and loans valued at $173 billion, including deposits of $92 billion. However, FRC's corporate debt/preferred stock will not be assumed.
History
A timeline of the takeover
Back in March, a consortium of 11 banks including JPMorgan, Morgan Stanley, and Goldman Sachs, deposited $30 billion in FRC, so that it did not crash.
Soon after, FDIC started accepting bids from financial institutions for FRC's takeover, and the final bids were submitted by JPMorgan and PNC Financial this Sunday.
JP emerged as the winner and FDIC termed the process "highly competitive."
Agreement
JPMorgan is also part of a loss-sharing transaction
Besides the FRC takeover, JPMorgan has also joined a "loss-share transaction" with FDIC and the U.S. Bank National Association.
The deal involves "single family, residential, and commercial loans purchased of the former First Republic Bank."
While FDIC will be the receiver, National Association and JPMorgan shall share potential recoveries on the loans as well as losses. The sum involved with the agreement remains undisclosed.
Future
What's next for JPMorgan?
After acquiring FRC, JPMorgan claimed that it expected to bag a one-time post-tax gain of around $2.6 billion. Meanwhile, FRC's 84 branches across eight US states will be reopened as JPMorgan offices.
Since 2021, JPMorgan has acquired over 30 companies at a combined valuation of over $5 billion. It is now the biggest US lender and a potential cause of worry for the government.
Background
A brief history of First Republic Bank
Founded in 1985 with just 10 employees, California-based First Republic Bank was an institution that mainly catered to high net-worth individuals.
Over the years, it had been bought and sold many times, including in 2007, 2009, and in 2010, when it finally went public.
The 14th largest commercial bank in the US employed over 7,200 people as of the end of last year.