JP Morgan takes over first Republic after being taken over by California financial regulator

A view of the First Republic Bank logo at the Park Avenue location on March 10, 2023 in New York City.

David Dee Delgado | Reuters

California’s financial regulator has seized First Republic, resulting in the third failure of a US bank since March, when a last-ditch effort to persuade rivals to keep the ailing bank afloat failed.

JPMorgan Chase Bank will accept all deposits, including uninsured deposits and “substantially all assets” of the bank, according to an initial release Monday.

California’s Department of Financial Protection and Innovation said it seized the bank and appointed the bank’s Federal Deposit Insurance Corp. as a receiver. The FDIC accepted JPMorgan’s bid for the bank’s assets.

Since the sudden collapse of Silicon Valley Bank in March, attention has focused on First Republic as the weakest link in the US banking system. Like SVB, which provided the tech startup community, First Republic was also a specialty lending institution based in California. It focused on serving wealthy coastal Americans, luring them with low-rate mortgages in exchange for leaving money in the bank.

But that model unraveled in the wake of the SVB collapse, as First Republic customers withdrew more than $100 billion in deposits, the bank revealed in its earnings report on April 24. Because customers fear losing their savings in the bank.

Shares of First Republic have fallen 97% so far this year through Friday’s close.

That deposit drain has forced it to borrow heavily from Federal Reserve facilities, which has squeezed the company’s margins as the company’s cost of funding is now so high. According to PCA Research chief strategist Doug Petta, First Republic accounted for 72% of borrowings during the recent Fed discount window.

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On April 24, First Republic CEO Michael Roeffler tried to portray a picture of stability after the events of March. Deposit outflows have slowed in recent weeks, he said. But the stock fell after the company denied its previous financial guidance and Roeffler decided not to take questions after an unusually brief conference call.

The bank’s advisers hoped to persuade the major American banks to once again help the First Republic. A version of the plan circulated recently asked banks to pay above-market rates for bonds on the First Republic’s balance sheets, which would help it raise capital from other sources.

But ultimately the banks, which had agreed to pay off $30 billion of deposits in the Republic since March, could not agree to a rescue plan and regulators took action, ending the bank’s 38-year run.

This story is developing. Check back for updates.

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