JPMorgan Buys Failed First Republic Bank

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Facts

  • JPMorgan Chase on Monday purchased all of troubled First Republic Bank’s deposits, and most of its assets, after regulators seized it in an effort to head off further US banking turmoil.1
  • JPMorgan will take on $173B of loans, $30B of securities, and $92B in deposits but not First Republic’s corporate debt or preferred stock. JPMorgan said it would recognize a one-off $2.6B gain and expected a $500M-a-year increase in net income.2
  • The Federal Deposit Insurance Corporation (FDIC) agreed to share losses on mortgages and commercial loans that JPMorgan assumed in the transaction, and also provide it with a $50B credit line. The bank will make a $10.6B payment to the FDIC.3
  • First Republic is the third US bank to collapse in recent months, joining Silicon Valley Bank (SVB) and Signature Bank. The San Francisco-based lender's shares plummeted last week after it admitted that customers had withdrawn $100B in March.4
  • First Republic reportedly couldn’t withstand losing 40% of its deposits in the first quarter of 2023 because 70% of its deposits were uninsured by the FDIC. A $30B infusion from 11 peer banks in mid-March also didn’t help.5
  • JPMorgan, the largest bank in the US, outbid PNC and Citizens, which submitted final bids Sunday in an auction by US regulators. JPMorgan already holds more than 10% of the nation’s total bank deposits, and analysts say deposits would increase by 3% as a result of the deal.6

Sources: 1Associated Press, 2Guardian, 3CNBC, 4BBC News, 5NBC, and 6Reuters.

Narratives

  • Narrative A, as provided by Better Markets. This situation is another example of the consolidation of wealth in the US, and only the largest banks can play the game. Instead of regulators and executives looking for band-aid solutions to serious problems, they should be enhancing and executing regulations to avoid these crises. This deal is a disservice to the country.
  • Narrative B, as provided by Investor's Business Daily. JPMorgan has saved the day again. With panic causing a major dip in the stock market, the bank was able to buy First Republic and help avert another SVB-like crisis. Anyone with an interest in the economy should be thankful JPMorgan cleaned up this mess.