June 2, 2023

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Regulators take over First Republic Bank and sell assets to JPMorgan

May 1 (Reuters) – Regulators seized First Republic Bank (FRC.N) and sold its assets to JPMorgan Chase & Co (JPM.N) on Monday, in a deal to resolve and break even the biggest US bank failure since the 2008 financial crisis. Line under the ongoing banking turmoil.

First Republic was among the regional US lenders hardest hit by a crisis of confidence in the banking sector in March, when depositors fled en masse from smaller banks to giants such as JPMorgan as they panicked about the collapse of two midsize US banks.

The bank has been teetering ever since, but investors fled again last week when it disclosed more than $100 billion in outflows in the first quarter and a plan to explore new options.

Barely a week later, California regulators on Monday seized First Republic and placed it in FDIC receivership along with the sale of its assets, marking the third major failure for a US bank in two months and the biggest since Washington Mutual in 2008.

JPMorgan shares rose 2% Monday, while mid-range banking stocks declined. The KBW Regional Banking Index (.KRX) closed down 2.7%. Wedbush analysts said First Republic shareholders would be eliminated in the deal. Shares of the bank plunged 43.3 percent in pre-market trading on Monday, before it was suspended.

JPMorgan will pay the US Federal Deposit Insurance Corporation (FDIC) $10.6 billion as part of the deal to gain control of most of the San Francisco-based bank’s assets and gain access to First Republic’s coveted wealthy client base.

“Our government and others called on us to step up, and we did,” said Jamie Dimon, chairman and chief executive officer of JPMorgan, which was a major player in the 2008 financial crisis and bought Bear Stearns in a weekend bailout.

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The deal will cost the FDIC about $13 billion, according to the regulator’s preliminary estimate.

US President Joe Biden on Monday praised the agreement to protect depositors without paying taxpayers the bills. He repeated his call for stricter regulation and oversight of banks.

“These measures will ensure that the banking system is safe and sound,” Biden said at a White House event. “More importantly, the taxpayers are not the ones hanging on.”

The White House praised the “decisive” measures taken by regulators to protect depositors and maintain the stability of the banking system. White House press secretary Karen Jean-Pierre said the measures would also ensure accountability for the First Republic, which she said was “very badly managed”.

Too big to fail?

Analysts and industry executives said the deal — which was concluded over the weekend after the FDIC ran an auction process that saw several other banks bid — should calm markets. But, they added, it came at a cost: Big banks were getting stronger while it was harder for smaller banks to do business.

Dennis Kelleher, chief executive of Wall Street reform group Better Markets, said the auction outcome showed “unhealthy consolidation, unfair competition, and a dangerous increase in banks too big to fail — all while hurting community banks and small business lending.” , and the economy. growth.”

JPMorgan already holds more than 10% of all bank deposits in the country. Wells Fargo said in a research note that JPM’s net deposits will increase by 3% as a result of the deal.

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“We need big, successful banks in the largest economy in the world,” Dimon told reporters on a conference call. “We have capabilities to serve our customers, which can be cities, schools, hospitals and governments. We bank the International Monetary Fund and the World Bank. Anyone who thinks the United States shouldn’t have that can contact me directly.”

Jane Fraser, CEO of rival Citigroup, hailed the deal as resolving the last major source of uncertainty in the sector after a period of turmoil.

“Let’s not denigrate all the regional and small banks as having a huge problem,” Fraser told a conference.

“This is not the global financial crisis, this is not the savings and loan crisis. There will be stress, but let’s target where it is.”

Rising prices

Global banking was affected by the March closures of Silicon Valley Bank and Signature Bank, as flight of deposits from US lenders forced the Federal Reserve to intervene with emergency measures to stabilize markets, while Credit Suisse of Switzerland (CSGN.S) had to be bailed out by UBS competitor (UBSG.S). These failures came after cryptocurrency-focused Silvergate was voluntarily liquidated.

Some have blamed the root cause of the crisis in the banking sector on the ultra-loose monetary policy for many years followed by a sudden reversal and rapid rate hike by the US Federal Reserve over the past year.

said Thomas J. Hayes, Chairman and Managing Director, Great Hill Capital.

Sources familiar with the matter said JPMorgan was one of several interested buyers including financial services group BNC and Citizens Financial Group Inc, which submitted final bids on Sunday in an auction by US regulators.

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JPMorgan said it assumed all of the bank’s deposits, and would repay $25 billion of the $30 billion from major banks deposited with the First Republic in March to help shore it up.

It added that the bank’s 84 failed offices in eight states would reopen as branches of JPMorgan Chase Bank starting Monday.

(Cover) By Saeed Azhar, Nupur Anand, and Tatiana Pautzer in New York. Editing by Stephen Coates and Kirsten Donovan

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