First Republic Bank has been seized by regulators and sold to JPMorgan Chase in a bid to contain the second-largest bank failure in US history.
The San Francisco-based bank is the third to fail in two months; it had been struggling since the collapse of Silicon Valley Bank and Signature Bank spooked investors who grew increasingly worried over its high amount of uninsured deposits and exposure to low-interest-rate loans.
Last week it revealed customers had withdrawn more than $100bn – over half of its deposits – since the other failures.
California’s Department of Financial Protection announced in the early hours of Monday it had taken possession of the bank and appointed the Federal Deposit Insurance Corporation (FDIC) as the bank’s receiver.
The FDIC has accepted a bid from JPMorgan Chase Bank to take control of all the bank’s deposits including all uninsured deposits and “substantially all assets”.
JPMorgan’s chief executive Jamie Dimon said in a statement that “our government invited us and others to step up, and we did”.
First Republic’s 84 offices across eight states will reopen for business as JP Morgan Chase Bank branches.
JPMorgan’s shares rose 2.6 per cent in pre-market trading following the news.
In the wake of SVB and Signature Bank’s collapses, the banking industry rallied around First Republic, with 11 of America’s biggest banks extending a $30bn lifeline to try to prevent its collapse.
But those efforts weren’t enough to save it.
In a desperate bid to turn fortunes around, the bank announced mass layoffs of around a quarter of its workforce and plans to sell off its unprofitable assets.
However, investors remained sceptical. First Republic executives have taken no questions from investors or analysts since its recent dismal results, further weakening the stock.
Rescue efforts continued down to the wire as the bank’s officials sought to find a way to either save the bank or find a buyer that didn’t involve a government takeover.
Last week, the FDIC reached out to other big banks – including JPMorgan – giving them up until noon on Sunday to make bids to take over First Republic.
The FDIC estimates that the cost to the Deposit Insurance Fund of covering First Republic’s losses will be about $13bn.
The US Treasury Department said it was “encouraged” by the deal.
A spokesperson said: “Treasury is encouraged that this institution was resolved with the least cost to the Deposit Insurance Fund, and in a manner that protected all depositors.”
