Regulators seized and closed First Republic Bank early Monday and immediately sold all of its deposits and most of its assets to JPMorgan Chase after scrambling for a deal over the weekend.
First Republic Bank appeared destined for receivership after last week's desperate attempts to broker a rescue. It marks the second-largest U.S. bank failure ever, trailing only Washington Mutual from 2008. Silicon Valley Bank was the second-biggest bank failure for just over a month after going under in March.
The California Department of Financial Protection and Innovation closed San Francisco-based First Republic Bank Monday and appointed the FDIC as receiver. Regulators then sold the bulk of the bank's business to JPMorgan Chase for $16 billion.
JPMorgan will assume $92 billion of First Republic's insured and uninsured deposits. That includes $30 billion in large bank deposits from JPMorgan and other big banks in an attempt to head off First Republic's collapse. Those deposits will be repaid post-close or eliminated in consolidation, JPMorgan said. JPMorgan is also buying most of the bank's assets, including $173 billion in loans and $30 billion in securities.
First Republic Bank had approximately $229.1 billion in total assets and $103.9 billion in deposits as of April 13, according to the FDIC.
JPMorgan needed a regulatory waiver to buy First Republic, because it already holds more than 10% of U.S. deposits.
The FDIC and JPMorgan will also enter a loss-share transaction on single family, residential and commercial loans purchased from First Republic. And the FDIC will provide $50 billion in five-year, fixed-rate term financing.
First Republic's 84 branches will reopen Monday as part of JPMorgan's normal business hours. Customers will have uninterrupted access to deposits and service as of today, JPMorgan said.
PNC Financial and Citizens Financial Group also reportedly bid for First Republic.
"Our government invited us and others to step up, and we did," JPMorgan CEO Jamie Dimon wrote in the release. "Our financial strength, capabilities and business model allowed us to develop a bid to execute the transaction in a way to minimize costs to the Deposit Insurance Fund."
First Republic Bank Deal Costs
The FDIC estimates it will cost the Deposit Insurance Fund roughly $13 billion. The final cost will be determined once the FDIC terminates receivership.
JPMorgan expects to recognize an upfront, one-time, post-tax gain of $2.6 billion. That doesn't reflect the $2 billion in post-tax restructuring costs anticipated over the next 18 months.
JPMorgan also expects the deal to be "modestly EPS accretive," and generate $500 million of incremental net income per year, excluding the post-tax gain or restructuring costs.
The FDIC will also distribute receivership dividends "to proven claimants of the failed institution," using cash generated through the liquidation of First Republic's assets.
'A Positive Transaction'
Bank of America Securities Analyst Ebraham Poonawala said the First Republic acquisition, "should likely end forced sales of banks due to deposit flight," in a Monday note. However, it's likely other banks may still deal with profitability challenges, which could prompt management to evaluate strategic options.
"At first blush we view this as a positive transaction for JPM and sentiment around bank stocks," he wrote. The deal also boosts JPMorgan's private bank business by adding "an army of private bankers (and high net worth client relationships) on the U.S. West and East coasts."
Poonawala noted the acquisition of First Republic Bank protects all deposits, both insured and uninsured, and didn't require a systemic risk exception.
Bank Stocks
FRC stock plunged 34% in premarket trade, but have been halted since 8:01 a.m. ET. Shares are down 97% so far in 2023.
First Republic Bank shareholders will be fourth, and last, in line to collect on claims, according to the FDIC, following depositors, general unsecured creditors and subordinated debt holders.
JPM stock rose 2.13% Monday to 141.18 following the news. Shares initially surged to clear the 141.88 cup-with-handle buy point at the open but eased out of the buy zone during trading.
PNC stock fell 6.4% and Citizens Financial retreated 6.8%, respectively, Monday.
The SPDR S&P Regional Banking ETF weakened 2.8%.
You can follow Harrison Miller for more stock news and updates on Twitter @IBD_Harrison
