The third major bank failure of the year turned out to First Republic Bank [1], which was taken over by the Federal Deposit Insurance Corporation (FDIC) [2] with most assets and deposits (insured and uninsured) auctioned off to JPMorgan Chase [3] (Chase). This news makes it the largest bank failure since Washington Mutual failed during the financial crisis in 2008 and also eclipses the failure of Silicon Valley Bank in March.
To put this another way, this is the second-largest bank failure in U.S. history. Since 2001, the U.S. has seen 562 bank failures—or an average of 26 per year, but none are typically of this magnitude.
By the numbers, as of December 31, 2022, First Republic was ranked as the 14th largest bank in the country by the Federal Reserve with assets of about $213 billion. As of April 13, First Republic had approximately $229.1 billion in assets and $103.9 billion in deposits.
“Our government invited us and others to step up, and we did,” said Jamie Dimon [4], Chairman and CEO of JPMorgan Chase. “Our financial strength, capabilities and business model allowed us to develop a bid to execute the transaction in a way to minimize costs to the Deposit Insurance Fund.”
Dimon added, “This acquisition modestly benefits our company overall, it is accretive to shareholders, it helps further advance our wealth strategy, and it is complementary to our existing franchise.”
Key transaction elements following the FDIC’s competitive bidding process include:
- Acquisition of the substantial majority of First Republic Bank’s assets, including approximately $173 billion of loans and approximately $30 billion of securities.
- Assumption of approximately $92 billion of deposits, including $30 billion of large bank deposits, which will be repaid post-close or eliminated in consolidation.
- FDIC will provide loss share agreements covering acquired single-family residential mortgage loans and commercial loans, as well as $50 billion of five-year, fixed-rate term financing.
- JPMorgan Chase is not assuming First Republic’s corporate debt or preferred stock.
- First Republic branches will open on Monday, May 1, as normal, and clients will continue to receive uninterrupted service, including digital and mobile banking capabilities.
As a result of this transaction, JPMorgan Chase expects to:
- Recognize an upfront, one-time, post-tax gain of approximately $2.6 billion, which does not reflect the approximately $2.0 billion dollars of post-tax restructuring costs anticipated over the next 18 months.
- Remain very well-capitalized with a CET1 ratio consistent with its 1Q 24 target of 13.5% and maintain healthy liquidity buffers.
The acquired First Republic businesses will be overseen by JPMorgan Chase’s Consumer and Community Banking (CCB) Co-CEOs, Marianne Lake and Jennifer Piepszak.
“First Republic has built a strong reputation for serving clients with integrity and exceptional service,” said Lake and Piepszak. “We look forward to welcoming First Republic employees. As always, we are committed to treating employees with respect, care and transparency.”
The FDIC estimates that the cost of the takeover will be about $13 billion, Chase will be paying $10.6 billion to the FDIC as well.