U.S. regulators seize First Republic Bank, sell to JPMorgan Chase - The Globe and Mail

The Federal Deposit Insurance Corp. says JPMorgan Chase Bank JPM-N will take over all deposits and most of the assets of troubled First Republic Bank.

The FDIC said early Monday that California regulators had closed First Republic FRC-N and appointed it as receiver. JPMorgan Chase will assume “all of the deposits and substantially all of the assets of First Republic Bank,” it said in a statement.

First Republic Bank’s 84 branches in eight states will reopen Monday as branches of JPMorgan Chase Bank.

Regulators had been working to find a way forward before U.S. stock markets opened Monday. San Francisco-based First Republic has struggled since the collapses of Silicon Valley Bank and Signature Bank in early March. They added to worries that the bank may not survive as an independent entity for much longer.

Regulators searched for a solution to First Republic Bank’s woes over the weekend, hoping to find a way forward before U.S. stock markets opened Monday.

San Francisco-based First Republic has struggled since the collapse of Silicon Valley Bank and Signature Bank in early March, as investors and depositors grew increasingly worried the bank may not survive as an independent entity. The bank’s stock closed at $3.51 on Friday, a fraction of the roughly $170 a share it traded for a year ago. It fell further in afterhours trading.

World markets have periodically been shaken by worries over turmoil in the banking industry since Silicon Valley Bank’s collapse. On Monday markets in many parts of the world were closed for May 1 holidays. The two markets in Asia that were open, in Tokyo and Sydney, rose on Monday while U.S. futures were little changed, with the contract for the S&P 500 up nearly 0.1%.

First Republic has been seen as the bank most likely to collapse next due to its high amount of uninsured deposits and exposure to low interest rate loans.

Gary Cohn, a former Goldman Sachs president who served as President Donald Trump’s top economic adviser, told CBS News’ “Face the Nation” on Sunday that the Federal Deposit Insurance Corporation “would prefer to sell the bank in its entirety than in pieces.”

“What will most likely happen is the FDIC will seize control and then simultaneously resell the asset to the successful bidder,” Cohn said.

Cohn said he believed it will be a “much faster process” than what happened with Silicon Valley Bank.

First Republic reported total assets of $233 billion as of March 31. At the end of last year, the Federal Reserve ranked First Republic 14th in size among U.S. commercial banks.

Before Silicon Valley Bank failed, First Republic had a banking franchise that was the envy of most of the industry. Its clients — mostly the rich and powerful — rarely defaulted on their loans. The 72-branch bank has made much of its money making low-cost loans to the rich, which reportedly included Meta Platforms CEO Mark Zuckerberg.

Flush with deposits from the well-heeled, First Republic saw total assets more than double from $102 billion at the end of 2019′s first quarter, when its full-time workforce was 4,600.

But the vast majority of First Republic’s deposits, like those in Silicon Valley and Signature Bank, were uninsured — that is, above the $250,000 limit set by the FDIC. And that made analysts and investors worried. If First Republic were to fail, its depositors might not get all their money back.

Those fears were crystalized in the bank’s recent quarterly results. The bank said depositors pulled more than $100 billion out of the bank during April’s crisis. San Francisco-based First Republic said that it was only able to stanch the bleeding after a group of large banks stepped in to save it with $30 billion in uninsured deposits.

Now First Republic is in need of a bigger fix.

“Getting the bank in the hands of a larger one is the best possible economic outcome,” said Steven Kelly, a researcher at the Yale School of Management’s Program on Financial Stability. “First Republic has lots of knowledge about its customers and has been a profitable bank for its entire history — but its business model is not stable. It needs a big bank balance sheet behind it.”

Kelly said that other options, such as government control or continuing to try to survive on its own, would see its value continue to disappear, along with credit and economic growth.

“A successful absorption into a big bank would provide a proper, stable home for the firm to continue to provide its value proposition to the economy,” Kelly said.

Since the crisis, First Republic has been looking for a way to quickly turn itself around. The bank planned to sell off unprofitable assets, including the low interest mortgages that it provided to wealthy clients. It also announced plans to lay off up to a quarter of its workforce, which totaled about 7,200 employees in late 2022.

But investors have remained skeptical. The bank’s executives have taken no questions from investors or analysts since the bank reported its results, causing the stock to sink further.

And it’s hard to profitably restructure a balance sheet when a firm has to sell off assets quickly and has fewer bankers to find opportunities for the bank to invest in. It took years for banks like Citigroup and Bank of America to return to profitability after the global financial crisis 15 years ago, and those banks had the benefit of a government-aided backstop to keep them going.

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2023-05-01 08:48:13Z
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