The latest on JPMorgan Chase takeover of First Republic Bank

The banking sector remains stable despite the recent collapse of First Republic Bank, JPMorgan Chase CEO Jamie Dimon said Monday.

"No crystal ball is perfect, but yes, I think the banking system is very stable," Dimon said on an investor call. "This part of the crisis is over."

JPMorgan Chase has acquired “the substantial majority of assets” and assumed the deposits, insured and uninsured, of First Republic from the FDIC.

First Republic's collapse is the second largest US bank to fail, and comes just over a month after the collapse of Silicon Valley Bank and Signature Bank set off concerns about the health of the financial sector.

But Dimon warned that while banking issues have been contained, the economy isn't out of the woods.

"Down the road, rates going way up, real estate, recession — that's a whole different issue. But for now, we should just take a deep breath," Dimon said.

Treasury Secretary Janet Yellen and other US officials were in touch with regulators all week as First Republic neared collapse, a source familiar with the matter told CNN. 

Given the stakes in the banking crisis casting a shadow over the US economy, it stands to reason that Yellen and other Biden officials were involved in the First Republic situation. 

The source familiar with the matter argued to CNN that First Republic is an “outlier” in the regional bank sector, adding that first-quarter results show midsize and regional banks are “well-capitalized” and deposit flows have “stabilized.”

Still, the First Republic collapse shows the banking turmoil is not over. First Republic marks the third bank failure in the past seven weeks, following a period where no banks collapsed in either 2021 or 2022.

The JPMorgan deal to buy First Republic risks “creating political blow back” for the Biden administration by allowing America’s biggest bank to expand its size, according to Jaret Seiberg, analyst at TD Cowen Washington Research Group.  

“This is an extraordinary series of events,” Seiberg wrote in a note to clients on Monday, pointing out that top regulators have permitted “the country’s biggest bank to get even bigger.” 

Seiberg said this will likely be a “Democratic focus for months.”

JPMorgan Chase is buying most assets of First Republic Bank after the nation’s second-largest bank failure ever, in a deal announced early Monday that protects the deposits of First Republic’s customers.

JPMorgan Chase said it had acquired “the substantial majority of assets” and assumed the deposits, insured and uninsured, of First Republic from the Federal Deposit Insurance Corporation, the independent government agency that insures deposits for bank customers.

“In carrying out this transaction, JPMorgan Chase is supporting the US financial system through its significant strength and execution capabilities,” the bank said in a statement.

The FDIC took control of the embattled First Republic and then immediately announced the sale. The failure will cost the FDIC about $13 billion. That money will be paid by the nation’s banks, which pay premiums to support the agency.

US stocks were trading flat early Monday following the news that JPMorgan Chase had come to the rescue of First Republic, the second-largest bank to fail in US history.

Dow futures were trading up 0.01% at 7.23 a.m. ET, while S&P 500 futures ticked down 0.02%, and Nasdaq futures dipped 0.05%.

JPMorgan Chase said Monday that it had acquired “the substantial majority of assets” and assumed the deposits, insured and uninsured, of First Republic from the US Federal Deposit Insurance Corporation, the independent government agency that insures deposits for bank customers.

First Republic’s stock has plunged more than 97% since mid-March when two US regional lenders, Silicon Valley Bank and Signature Bank, collapsed, sending shockwaves through the global banking sector.

Regulators and investors have been nervously watching financial markets ever since for signs that more banks could follow suit.

A new joint effort by the government and the finance industry to prevent another teetering bank from triggering a wider crisis is underscoring US and international worries about the sector and producing another no-win political headache for the Biden administration.

The FDIC’s forced intervention in the sale of First Republic Bank is likely to fuel concerns about the overall health of the US banking sector. The run of banking crises has been partly caused by damage to banks – which had profited from years of low interest rates – from the Federal Reserve’s quick rate hikes to fight high inflation.

Challenges to the economy are already causing political reverberations for President Joe Biden, who launched his reelection bid last week arguing that he had engineered a strong exit from the Covid-19 storm for the economy, notwithstanding high inflation that caused significant pain for American families last year. Inflation has not yet fallen to low levels typical of recent decades, which has fueled an era of price stability.

The new concerns over the banking sector put the administration back in an unappealing position. During the previous round of banking disruption earlier this spring, administration officials strenuously denied that their interventions – designed to protect depositors rather than industry executives who made rash decisions – amounted to a bailout.

This position was a recognition of the political hangover left by massive government-funded rescues of the sector during the 2008 financial crisis, which helped nurture the Tea Party movement in the Republican Party and angered Americans amid a sudden escalation of unemployment.

But the charge that the administration is engaging in a 2008-style bailout for wealthy banking executives – even if it is not accurate – is an easy one for Biden’s political opponents to make, and is complicated for the White House and the Treasury Department to refute. At the same time, however, the likely political impact of a possible widespread banking crisis had First Republic simply been allowed to fail could have proven even more damaging to Americans generally and to the Biden administration, especially ahead of 2024.

JPMorgan Chase plans to pay the Federal Deposit Insurance Corporation $10.6 billion to acquire most of failed regional bank First Republic.

In a slide presentation detailing the deal, JPMorgan said it has agreed to acquire $173 billion of loans and $30 billion of securities from San Francisco-based First Republic.  

The FDIC has agreed to provide a $50 billion five-year fixed-rate term financing as part of the transaction, according to JPMorgan.  

Even though the First Republic seizure and takeover was not announced until early Monday, JPMorgan said the transaction has already closed and all regulatory approvals have been received. 

JPMorgan, the largest US bank, said it will not assume First Republic’s corporate debt or preferred stock.  

US officials are sweetening the deal for JPMorgan, in part by agreeing to limit the big bank’s downside. 

JPMorgan said the FDIC will provide loan share agreements on most acquired loans, including 80% loss coverage for seven years on single family residential mortgages. The FDIC has also agreed to 80% loss coverage for five years on commercial loans, including commercial real estate. 

For JPMorgan, the deal will increase its exposure to affluent Americans. First Republic catered to rich clients and has branches in Hollywood, Palm Beach and Greenwich, Connecticut.  

JPMorgan said the deal “increases penetration with US high net worth clients” and accelerates its wealth strategy.

Typically, in an FDIC takeover, the employees of the failed bank are kept on to help with the transition. Their salary and benefits are paid for by the FDIC during that time. "It is customary that we seek to retain these employees during the resolution process to ensure continued customer service and access to deposits," a spokesperson said.

Since JPMorgan Chase has acquired First Republic, it will be the one deciding whether the banks' employees stay on. 

Deposits at First Republic will continue to be insured by the FDIC, and “customers do not need to change their banking relationship in order to retain their deposit insurance coverage up to applicable limits,” the agency said in its statement Monday.

“As part of the transaction, First Republic Bank’s 84 offices in eight states will reopen as branches of JPMorgan Chase Bank, National Association, today during normal business hours,” it noted.

First Republic, which started operations in 1985 with a single San Francisco branch, is known for catering to wealthy clients in coastal states. It had assets of $229.1 billion as of April 13. As of the end of last year, it was the nation’s 14th-largest bank, according to a ranking by the Federal Reserve. JPMorgan Chase is the largest bank in the United States with total global assets of nearly $4 trillion as of March 31.

First Republic has branches in high-income communities such as Beverly Hills, Brentwood, Santa Monica and Napa Valley, California; in addition to San Francisco, Los Angeles and Silicon Valley. Outside of California, branches are in other high-income communities such as Palm Beach, Florida; Greenwich, Connecticut; Bellevue, Washington; and Jackson, Wyoming. It had about 7,200 employees as of the end of last year.

First Republic, which entered a death spiral six weeks ago and was seized by the Federal Deposit Insurance Corporation early Monday and taken over byJPMorgan Chase, is the third US lender to fail in two months — and the reason has a lot to do with its well-heeled client base.

The banking turmoil that started with Silicon Valley Bank in March set off a panic among depositors and investors, who fled regional bank stocks that had real and perceived similarities to SVB.

First Republic, only slightly larger than SVB and catering to a similarly wealthy coastal clientele, immediately had a target on its back.

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