JP Morgan is to acquire most of the failed California bank First Republic, in a takeover brokered by regulators as the US races to contain a series of banking failures that has echoes of the 2008 global financial crisis.
After weekend talks to prevent a further escalation of the US banking crisis, the Federal Deposit Insurance Corporation (FDIC) confirmed that First Republic had collapsed and would be taken over by JP Morgan. The regulator is providing $50bn (£39.9bn) of financing as part of the deal.
America’s largest bank will acquire “all of the deposits and substantially all of the assets” of First Republic, winning out over as many as five rivals reportedly in the running.
JP Morgan’s chief executive, Jamie Dimon, said: “Our government invited us and others to step up, and we did. 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.”
First Republic is the third US lender to collapse this year, after Silicon Valley Bank (SVB) and Signature Bank, a sequence that has prompted concerns about contagion last experienced in the 2008 global financial crisis.
Growing anxiety about the potential for the economic setbacks to spread, as customers pull deposits from any US lender perceived as weak, has forced the Federal Reserve to launch emergency measures to stabilise the markets.
A group of 11 Wall Street banks had pumped $30bn into First Republic last month in an attempt to avoid the third bank failure of 2023. However, shares in the San Francisco-based bank, which targeted high-net worth individuals, fell by more than 75% last week after it revealed customers had withdrawn $100bn of deposits in March.
JP Morgan will take on $173bn of loans, $30bn of securities and $92bn in deposits but not First Republic’s corporate debt or preferred stock. JP Morgan said it wold recognise a one-off $2.6bn gain and expected a $500m-a-year increase in net income, but added that it also put restructuring costs related to the acquisition at $2.6bn.
First Republic’s 84 branches will open as JP Morgan branches on Monday morning in the US.
The FDIC has agreed to share any losses on residential mortgages and commercial loans, as well as providing $50bn in financing.
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After the previous two banking collapses, the Federal Reserve admitted in a report it had been slow to consider the strain on US banks from a steep rise in interest rates, which has lowered the value of banks’ financial assets even though it has increased their profitability.
The result was panic and a flight of funds away from smaller lenders and towards large financial institutions seen to be safe havens.
US central bank officials have also blamed changes made during the presidency of Donald Trump that have watered down the oversight of mid-sized banks such as SVB and First Republic.
