In a major development, JP Morgan Chase on Monday said that the company has acquired the substantial majority of assets and assumed the deposits and certain other liabilities of the California-based First Republic Bank from the Federal Deposit Insurance Corporation. The development comes days after FDIC put the San Francisco-based bank under the receivership program last week.
Last week, the California-based Department of Financial Protection & Innovation (DFPI) took possession of First Republic Bank. The Federal Department appointed FDIC as the receiver of First Republic Bank. On Monday, FDIC accepted a bid from JPMorgan Chase Bank, National Association, Columbus, Ohio, to assume all deposits, including all uninsured deposits, and substantially all assets of First Republic Bank.
First Republic Bank has been touted as the “weakest link” in the US banking system after the collapse of the Silicon Valley Bank in March this year. The earnings report of the bank revealed that the bank’s clientele, which consisted of mostly rich coastal Americans, withdrew over $100 billion in the wake of the Silicon Valley Bank (SVB) collapse.
As part of the purchase, JP Morgan Chase is assuming all deposits – insured and uninsured.
“Our government invited us and others to step up, and we did. 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,” says Jamie Dimon, Chairman and CEO of JP Morgan.
“This acquisition modestly benefits our company overall, it is accretive to shareholders, it helps further advance our wealth strategy, and it is complementary to our existing franchise,” Dimon adds.
As part of the transaction, JP Morgan Chase will have the acquisition of the substantial majority of First Republic Bank’s assets including approximately $173 billion of loans and approximately $30 billion of securities. JP Morgan Chase will also have an assumption of approximately $92 billion of First Republic Bank’s deposits, including $30 billion of large bank deposits, which will be repaid post-close or eliminated in consolidation. JP Morgan will, however, not assume the beleaguered bank’s corporate debt or preferred stock.
FDIC will provide loss share agreements covering acquired single-family residential mortgage loans and commercial loans, as well as $50 billion of five-year, fixed-rate term financing.
According to JP Morgan Chase, First Republic Bank’s clients will continue to receive uninterrupted service, including digital and mobile banking capabilities.
The transaction is expected to be modestly EPS accretive and generate more than $500 million of incremental net income per year, not including the approximately $2.6 billion one-time post-tax gain or approximately $2.0 billion of post-tax restructuring costs expected over the course of 2023 and 2024.
The acquired First Republic businesses will be overseen by JPMorgan Chase’s consumer and community banking (CCB) co-CEOs, Marianne Lake and Jennifer Piepszak.
