The first Republican bank was taken over by regulators and sold to JPMorgan Chase

Regulators took control of First Republic Bank and sold it to JPMorgan Chase on Monday, in a dramatic move aimed at curbing a two-month banking crisis that has rocked the financial system.

The First Republic is the second largest US bank by assets to fail after Washington Mutual, which failed during the 2008 financial crisis and was also taken over by JPMorgan.

Founded in 1985 and ranked 14th largest US bank earlier this year, First Republic’s assets have been battered by soaring interest rates, and the company has been struggling to survive after the collapse of other lenders in March, leaving Raised the concerns of depositors and investors.

The announcement of the acquisition by the federal deposit insurer of First Republic and its sale to JPMorgan occurred hours before the US markets opened, and after a scramble by officials over the weekend. On Monday, 84 First Republic branches in eight states reopened as JPMorgan branches.

“This part of the crisis is over,” JPMorgan CEO Jamie Dimon said on a conference call Monday. “For now we all need to take a deep breath.”

Investors welcomed the JPMorgan acquisition, sending the bank’s stock up 3.5 percent on Monday. PNC Financial Services and Citizens Financial Group — two regional banks that lost in a bid to buy First Republic — fell more than 5 percent.

First Republic’s shareholders and debt holders would be eliminated in the deal, which is typical when a bank is placed in government receivership. The First Republic’s name and logo – an eagle spreading its wings in a V shape – will be scrapped and the bank’s branches will become JPMorgan Chase outlets.

President Biden also welcomed the acquisition during a speech on small business Monday afternoon. “These measures will ensure that the banking system is safe and sound,” said Mr. Biden from the Rose Garden. He added, “While depositors are protected, shareholders lose their investment. More importantly, it is not the taxpayers who are in trouble.”

The FDIC estimated that its insurance fund, which consists of fees banks pay to the agency for deposit insurance, would have to pay out about $13 billion to cover First Republic’s losses. JPMorgan also said that FDIC will provide it with $50 billion in financing and that JPMorgan will pay $10.6 billion to FDIC.

“Our government and others have called on us to step up, and we have done so,” Mr. Dimon said. He said the aim of the deal was to “reduce costs for the Deposit Insurance Fund”.

The acquisition makes JPMorgan, already the country’s largest bank, even bigger and it was already in the works Some lawmakers criticized it. “Since the 2008 financial crisis, regulators have tried to prevent the largest banks from becoming more dominant,” Ian Katz, an analyst at Capital Alpha Partners, wrote in a research note. Increasing JPMorgan’s size “will resent lawmakers on both sides of the aisle, but will especially resent the progressives who have fought against consolidation through mergers and acquisitions.”

First Republic failed despite receiving a $30 billion lifeline from 11 of the country’s largest banks in March. JPMorgan said $30 billion It will be paid after the transaction is closed.

The government’s acquisition and sale of First Republic comes nearly eight weeks after the government took control of Silicon Valley Bank and Signature Bank, whose failures sent shockwaves through the industry and raised fears other regional banks were at risk of similar deposit operations.

Many banking experts said the First Republic’s troubles were a delayed reaction to the turmoil in March rather than the start of a new phase in the crisis. Investors and industry executives are optimistic that no other medium or large lenders are at imminent risk of failure.

Like the other two failed banks — Silicon Valley Bank and Signature — First Republic collapsed under the weight of loans and investments that lost billions of dollars in value as the Federal Reserve quickly raised interest rates to fight inflation. When it began to become clear that these assets were now much less valuable, First Republic’s wealthy clients, most of whom lived on the coasts, began withdrawing their money as quickly as they could, and investors dumped its stock.

“The fundamental sin of FRC and SVB is that they grew too quickly when interest rates were close to zero percent,” Timothy Coffey, banking analyst at Janney Montgomery Scott, said in a research note, referring to First Republic and Silicon Valley Bank. “There were probably others. However, it is a very limited group of institutions as the vast majority of banks passed collecting pennies in front of the steam controller.”

However, the US financial system has a lot of problems. Recent bank failures and rising interest rates have forced banks to rein in lending, making it difficult for businesses to expand and for individuals to buy homes and cars. This is one of the reasons why the economy has slowed in recent months.

The end of the First Republic came after weeks during which the bank and its advisors sought either to bail out the bank or find a buyer outside a government takeover. But the efforts were in vain: other banks were reluctant to buy them, or bought them without guarantees that they would not be left with billions of dollars in losses. By last week, after a troubling earnings report in which the bank revealed customers had withdrawn more than half of its deposits, it became clear there was no choice outside of a government takeover.

Late last week, the FDIC reached out to other financial institutions, including JPMorgan Chase, PNC Financial Services, and Bank of America, seeking offers to acquire First Republic. Bidders had until Sunday afternoon to submit their bids. As part of the bidding process, the banks were also asked what facilities they would seek from the government going forward, people familiar with the process said.

The sale was expected to close on Sunday evening, but the announcement was made at midnight. JPMorgan’s Dimon said the bank has 800 employees working on the deal over the past several days.

The banking crisis also put federal regulators on the defensive by exposing problems that analysts said government officials should have identified and forced banks to fix months earlier. Last week, the Federal Reserve and the FDIC published self-critical reports for failing to adequately regulate Silicon Valley Bank and Signature. The reports also blamed banks for mismanagement and excessive risk taking.

First Republic had many clients in the start-up industry – similar to Silicon Valley Bank – and in the financial industry, including top bankers and hedge fund managers. Many of her accounts had more than $250,000, the federal deposit insurance limit.

The recent bank shutdown may keep the Fed on track to raise rates by a quarter point, Krishna Guha, head of global policy and central bank strategy team at Evercore ISI, said at its meeting on Wednesday. In fact, he said, it might “pave the way” for such a move by eliminating a lingering source of risk and uncertainty.

But Mr Guha said banking issues were moving from an “acute” to a “chronic” phase: other lenders might look at First Republic and other banks’ recent failures and try to bolster their positions by becoming more cautious about lending.

“The macroeconomic effects of bank pressures may be in an early stage of exposure,” Guha said.

Rob Copeland And Jim Tankersley Contribute to the preparation of reports.