JPMorgan Chase buys First Republic in bid to end bank turmoil

The FDIC said Monday that JPMorgan Chase has purchased First Republic Bank, the embattled lender that has struggled for weeks after being slammed with massive deposit outflows.

Regulators had scrambled all weekend to complete a deal to sell San Francisco-based First Republic to head off any further market turmoil following the collapse last month of Silicon Valley Bank and Signature Bank. California’s state bank regulator shut down First Republic overnight and appointed the FDIC as receiver. That cleared the way for a sale to JPMorgan, which will take on all deposits and substantially all assets.

First Republic, until this year one of the more envied banking franchises in America with over $200 billion in assets, surpassed SVB to become the second-largest bank failure in U.S. history, behind only Washington Mutual.

The bank’s demise is the latest fallout from the stunning fall of SVB, which sparked runs at similar institutions, including Signature. These banks all had an unusually large number of deposits that weren’t backed by the FDIC because they catered to companies and wealthy individuals whose balances far exceeded the $250,000 deposit insurance limit.

That led to runs as depositors worried about the solvency of these banks, which all held significant portfolios of assets that had dropped in value.

JPMorgan CEO Jamie Dimon on a call with analysts said the banking system is stable, but acknowledged that “no crystal ball is perfect.”

“Hopefully this mini-bank crisis is over,” he said.

The Treasury Department in a statement said the banking system “remains sound and resilient, and Americans should feel confident in the safety of their deposits and the ability of the banking system to fulfill its essential function of providing credit to businesses and families.”

The FDIC will share some of the losses from First Republic’s portfolio of residential mortgages and commercial loans, and provide $50 billion in financing for the buyer, according to a press release from JPMorgan. The agency said it expects a $13 billion hit to its deposit insurance fund, which is financed by fees from banks.

In its release, JPMorgan said it has bought $173 billion in loans and $30 billion in securities. It will also assume $92 billion in deposits, “including $30 billion of large bank deposits, which will be repaid post-close or eliminated in consolidation.”

On March 16 — less than a week after uninsured depositors at SVB and Signature Bank were rescued by federal banking regulators — 11 of the nation’s largest financial institutions, including JPMorgan, deposited $30 billion into First Republic in an attempt to shore up its balance sheet.

The lender was slammed by more than $100 billion of withdrawals as panic swept across the regional banking sector last month, and the majority of uninsured deposits remaining at First Republic came from that infusion of cash.

The deal means government officials did not have to decide whether to once again back uninsured deposits at a failed bank, as they aim to keep calm in the banking sector.

FDIC board member Jonathan McKernan, a Republican who joined the agency in May, said he was “pleased we were able to deal with First Republic’s failure without using the FDIC’s emergency powers.”

“It is a grave and unfortunate event when the FDIC uses these emergency powers,” he said. “The March 12 rescue of SVB and Signature’s uninsured depositors was an admission that 15 years of reform efforts have not been a success,” arguing that the agency should “avoid the temptation to pile on yet more prescriptive regulation or otherwise push responsible risk taking out of the banking system.”