First Republic Bank has been seized by California regulators and sold to JP Morgan Chase in what marks the third U.S. bank failure in just seven weeks.
“U.S. regulators have seized troubled First Republic Bank and sold its deposits and assets to JP Morgan Chase Bank, in a bid to avert further turmoil in the banking sector.
San Francisco-based First Republic is the third midsize American bank to fail in two months, after Silicon Valley Bank and Signature Bank collapsed in March, sending shockwaves throughout the banking industry.
Following the closure of those two banks, investors and depositors had grown increasingly nervous that First Republic might also go under due to a high amount of uninsured deposits and low-interest rate loans.
First Republic disclosed last week that its jittery customers had pulled out more than $100 billion in deposits in the first quarter and was exploring options.
Its shares tumbled 43.3% in premarket trading before being halted. The bank’s stock has lost 97% of its value this year.
To mitigate the crisis, the U.S. Federal Deposit Insurance Corp (FDIC) reached out to larger institutions, including JP Morgan and Citizens Financial Group Inc (CFG.N), to submit their final bids if they were interested in buying out First Republic.
JP Morgan won the auction over the weekend and agreed to make a payment of $10.6 billion to the FDIC as part of the deal to buy most of the smaller lender's assets.
‘Our government invited us and others to step up, and we did’, said Jamie Dimon, chairman and CEO of JP Morgan Chase.
In a statement, JP Morgan said they have taken over all the deposits of the bank and agreed to pay back $25 billion of the $30 billion that big banks deposited at the lender in March.
The FDIC announced Monday that First Republic's 84 branches in eight states will reopen as branches of JP Morgan, and depositors will have full access to all of their deposits.
As of April 13th, First Republic had approximately $229 billion in total assets and $104 billion in total deposits.
As part of the agreement, the FDIC will share losses with JP Morgan on First Republic’s loans”. -Press TV
First Republic has $229 billion in assets, making it the second-biggest bank to collapse in U.S. history after the 2008 failure of Washington Mutual, which at the time had roughly $307 billion and was also sold to JP Morgan.
The takeover here of First Republic Bank indicates that the previous bailout did astonishingly little to help ease the financial crisis at hand.
Assuming the Fed raises rates by 0.25% later in the week, banks across the country will be bracing for a recession by tightening lending standards and increasing provisions for credit defaults.