JPMorgan Chase, already the largest U.S. bank by several measures, emerged as winner of the weekend auction for First Republic. JPMorgan is getting about $92 billion in deposits in the deal, which includes the $30 billion that it and other large banks put into First Republic last month. The bank is taking on $173 billion in loans and $30 billion in securities as well.
The Federal Deposit Insurance Corporation agreed to share losses on mortgages and commercial loans that JPMorgan assumed in the transaction, and also provided it with a $50 billion credit line. JPMorgan said it was making a payment of $10.6 billion to the FDIC.
Since the sudden collapse of Silicon Valley Bank in March, attention has focused on First Republic as the weakest link in the U.S. banking system. Like SVB, which catered to the tech startup community, First Republic was also a California-based specialty lender of sorts. It focused on serving rich coastal Americans, enticing them with low-rate mortgages in exchange for leaving cash at the bank.
But that model unraveled in the wake of the SVB collapse, as First Republic clients withdrew more than $100 billion in deposits, the bank revealed in its earnings report April 24. Institutions with a high proportion of uninsured deposits such as SVB and First Republic found themselves vulnerable because clients feared losing savings in a bank run.
“As part of the transaction, First Republic Bank’s 84 offices in eight states will reopen as branches of JPMorgan Chase Bank, National Association, today during normal business hours,” the FDIC said in a statement. “All depositors of First Republic Bank will become depositors of JPMorgan Chase Bank, National Association, and will have full access to all of their deposits.”
JPMorgan CEO Jamie Dimon touted the acquisition in a statement early Monday morning. “Our government invited us and others to step up, and we did,” he said. “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.” You can read more here.
We are watching this story and the banking industry at large closely. We have seen an uptick in buying activity in New York City. Approximately 50% of transactions of late have been cash deals. Our team is here to answer any questions.