JP Morgan will buy most of failed California bank First Republic in a deal brokered by regulators as the United States scrambles to stem a wave of bank failures with echoes of the 2008 global financial crisis.
After talks over the weekend to prevent further escalation of the US banking crisis, the Federal Deposit Insurance Corporation (FDIC) confirmed that First Republic had collapsed and would be acquired by JP Morgan. The regulator is providing $50bn (£39.9bn) of financing as part of the deal.
America’s largest bank will acquire “all deposits and substantially all assets” of First Republic, reportedly winning as many as five rivals in the race.
JP Morgan CEO Jamie Dimon said: “Our government invited us and others to come forward, and we did.
“This acquisition modestly benefits our overall business, is beneficial to shareholders, helps further advance our equity strategy, and is complementary to our existing franchise.”
San Francisco-based First Republic is the third US lender to collapse this year, after Silicon Valley Bank (SVB) and Signature Bank, a sequence that has raised concerns about contagion last experienced in the global financial crisis of 2008.
Growing anxiety over the possibility of further unrest, as customers withdraw deposits from any perceived weak US lender, has forced the Federal Reserve to launch emergency measures to stabilize markets.
A group of 11 Wall Street banks had injected $30 billion into the First Republic last month in an attempt to stave off the third bank failure of 2023. However, shares of the California-based bank, which targeted high-ranking individuals, net worth, fell more than 75% last week after he revealed that customers had withdrawn $100 billion of deposits in March.
JP Morgan will assume $173 billion in loans, $30 billion in securities and $92 billion in deposits, but will not assume First Republic corporate debt or preferred stock. The bank will recognize a one-time gain of $2.6 billion and expects a $500 million-a-year increase in net income, but said it also estimated acquisition-related restructuring costs at $2.6 billion.
First Republic’s 84 branches will open as JP Morgan branches on Monday morning in the US.
The FDIC agreed to share any losses on residential mortgages and commercial loans, as well as provide $50 billion in financing.
After the last two banking collapses, the Federal Reserve admitted in a report that it had been slow to consider the pressure on US banks from a sharp rise in interest rates, which has reduced the value of banks’ financial assets despite that its profitability has increased. .
The result was panic and a flight of funds from smaller lenders to safe-haven financial institutions.
US central bank officials have also blamed reforms under President Donald Trump, which had the effect of diluting supervision of midsize banks like SVB and First Republic.