First Republic Bank News
JPMorgan Chase has taken over 84 First Republic Bank branches across eight states after regulators seized control of the bank due to a two-month-long crisis in the banking sector. First Republic had struggled to stay afloat following the collapse of two other lenders the previous month, causing alarm among depositors and investors. The Federal Deposit Insurance Corporation took over the bank and subsequently sold it to JPMorgan Chase in a deal announced just before US markets opened. The acquisition will see JPMorgan assume all of First Republic’s deposits and assets, with the F.D.I.C. covering losses estimated at $13bn. JPMorgan will also receive $50bn in financing from the regulator. The deal will make JPMorgan even larger and may attract political attention.
First Republic Bank ultimately failed despite receiving a $30 billion lifeline from 11 of the country’s biggest banks in March. JPMorgan stated that the $30 billion will be repaid once the deal closes. First Republic Bank will be remembered as the second-largest U.S. bank by assets to fail, following Washington Mutual’s collapse during the 2008 financial crisis.
The government’s takeover and sale of First Republic Bank comes after the government took over Silicon Valley Bank and Signature Bank seven weeks ago. The failures of these banks sent shockwaves throughout the industry and raised concerns that other regional banks were also at risk of similar runs on deposits.
As per many banking experts, First Republic Bank’s struggles were more of a delayed reaction to the March turmoil rather than a new phase of the crisis. There is optimism among investors and industry executives that no other midsize or large banks are at risk of imminent failure. While First Republic’s stock plummeted last week, other bank stocks remained relatively stable.
Despite this, the U.S. financial system is facing several challenges. Recent bank failures and increasing interest rates have resulted in banks curtailing lending, making it difficult for businesses to expand and for individuals to purchase homes and cars. This has contributed to the recent economic slowdown.
In premarket trading, JPMorgan shares rose by around 3 percent, while the S&P 500 was expected to open with a flat rate.
First Republic Bank News Today
Krishna Guha, who heads the global policy and central bank strategy team at Evercore ISI, stated that First Republic’s takeover was expected and is unlikely to cause significant spillovers in financial markets. First Republic Bank received a $30 billion cash infusion from 11 of the country’s largest banks in March, but it did not alleviate concerns about the bank’s viability. The bank, which was the 14th largest in the US at the start of the year, was severely affected by a banking crisis that began when Silicon Valley Bank was on the verge of collapse.
The First Republic made every effort to either save the bank or find a buyer without resorting to a government takeover, but their efforts were unsuccessful. Other banks were hesitant to acquire the bank or its assets without assurance that they wouldn’t suffer billions of dollars in losses. The bank’s earnings report revealed that customers had withdrawn more than half of its deposits, and it became evident last week that there was no alternative to a government takeover.
Towards the end of last week, the F.D.I.C. contacted several financial institutions, such as Bank of America, JPMorgan Chase, and PNC Financial Services, requesting bids for the failing First Republic. Bidders were given until noon on Sunday to submit their proposals. As part of the bidding process, banks were also asked to state which parts of the bank they would not accept.
Like Silicon Valley Bank and Signature, the other two failed banks, First Republic collapsed due to loans and investments that lost billions of dollars in value. This was caused by the rapid increase in interest rates by the Federal Reserve to combat inflation. As it became evident that these assets were now worth significantly less, First Republic’s wealthy clients, the majority of whom reside on the coasts, started withdrawing their money as quickly as possible, and investors sold their shares.
Last Monday, First Republic disclosed that its clients had withdrawn $102 billion in deposits during the first three months of the year, which was over half of the $176 billion it held at the end of 2022. It also admitted to borrowing $92 billion, mainly from the Fed and government-backed lending groups, essentially acknowledging that it had to seek help from the financial industry’s last resort lenders to remain open.
The bank’s dire financial statement only fueled the worst fears of investors that the F.D.I.C. would have to take over the bank.
By Thursday evening, the First Republic and its advisers realized that they had no options remaining apart from a government takeover. According to three people familiar with the matter, the F.D.I.C. collaborated with the financial advisory firm Guggenheim Partners throughout the process.
In recent news, First Republic Bank has become the third bank to fail this year due to failed loans and investments. Although a $30 billion cash infusion helped calm the banking system, concerns about the bank’s viability remained. Last week, the Federal Deposit Insurance Corporation (FDIC) sought bids from other financial institutions, including JPMorgan Chase, PNC Financial Services, and Bank of America. The banks had until Sunday to submit their offers, specifying which parts of the bank they wouldn’t accept.
First Republic Bank’s affluent customers, most of whom live on the coasts, began pulling their money out as quickly as possible after the value of the bank’s loans and investments fell. In the first three months of 2023, clients had withdrawn $102 billion in deposits, over half of the $176 billion the bank had held at the end of 2022. This led to the bank’s borrowing of $92 billion, mostly from the Federal Reserve and government-backed lending groups.
The bank’s financial statement fueled the worst fears of investors, leading to a government takeover. Federal regulators have been criticized for their inadequate regulation of Silicon Valley Bank and Signature, the first two banks to fail this year. First Republic had many clients in the start-up industry, similar to Silicon Valley Bank, and in the financial industry, including senior bankers and hedge fund managers.
First Republic’s closure could add to concerns about an economic slowdown, making banks and investors more cautious. This could make lending more difficult and costly, impeding business expansion and hiring. However, First Republic’s collapse may “clear the decks” for the Fed to raise interest rates a quarter point at its meeting on Wednesday, taking away a lingering source of risk and uncertainty.
Because of the types of clients it served, the bank’s executives often spoke about the safety of its business model and its growth. Its customer base had little history of defaults, but the bank underwrote mortgages when interest rates were low and kept them on its books, losing value every time mortgage rates on new loans climbed over the last year. Other regional lenders, like Utah’s Zions Bank and PacWest of Los Angeles, have firmed their footing faster than the First Republic, and bank analysts do not see another collapse as imminent.