First Republic Bank, there’s the deal: JP Morgan will acquire the deposits and almost all the assets

Jp Morgan rescues First Republic Bank by acquiring $229 billion in assets. The unexpected rescue of the second largest bank failure in U.S. history.
jp morgan

First Republic Bank is safe thanks to Jp Morgan, which will acquire most of the bank’s assets in a $229.1 billion deal. This was made known in a statement by the U.S. regulator, reported by the Wall Street Journal. This is the second largest bank failure in U.S. history after Washington Mutual in 2008.

First Republic saved thanks to Jp Morgan, what happened

Federal regulators announced the sale of most of the assets to Jp Morgan Chase & Co, after placing the bank under receivership. First Republic Bank was founded in 1985 and was the 14th largest bank in the United States at the beginning of this year.

However, the crisis that has hit U.S. banking institutions in the recent period, with the collapse of Silicon Valley Bank and Signature Bank, has radically upset the financial balance. Thus, First Republic Bank’s shares have lost almost their entire value in recent months.

Various bailout attempts have failed to stem the crisis. And the U.S. behemoth is saved only by the agreement made with Jp Morgan by the Federal deposit insurance corporation. The latter, which provides guarantees on current accounts, has in fact closed First Republic’s assets. Most of which will be purchased by the New York-based multinational for a total of $229.1 billion in assets. It will still be Jp Morgan that will assume all of First Republic Bank’s 103.9 billion in deposits.

With the crisis that began now more than a month ago and unsuccessful attempts at recovery, the collapse of First Republic’s stock on the stock market has in fact continued. This, in parallel with the withdrawal of deposits by depositors worried about possible losses.

In mid-March, in fact, the bank obtained a $30 billion deposit, thanks to the shrewdness reached by U.S. Treasury Secretary Janet Yellen with the country’s major banks, including in addition to Jp Morgan:

  • Citigroup;

  • Wells Fargo;

  • Bank of America;

  • Morgan Stanley;

  • Goldman Sachs.

The sudden intervention was not enough to reassure investors. And after a brief halt due to the move, the stock market slump resumed. Just as it did with other financial institutions.

In the first months of 2023, the San Francisco-based bank saw a 97 percent drop in share value, the very accomplices being deposit outflows and investor restraint. In fact, a week ago, to be precise on April 26, First Republic Bank suffered yet another drop in capitalization. Thus falling below $1 billion.

Failure of First Republic Bank, risk of contagion averted

Thus, U.S. supervision worked hard to resolve the crisis in a short time frame. Thus in an effort to anticipate the opening of Asian stock exchanges. And avoid the ripple effect on the banking system.

Indeed, just as happened with the collapse of Silicon Valley Bank, there were fears of the repercussions that the failure of First Republican would cause. The banks in question actually have similar characteristics, including several similarities in the triggers of the crisis.

Since these are medium-sized banks, where most of the customers are corporate, the current accounts are quite large and exceed the limit (amounting to $250,000) within which U.S. law guarantees bankruptcy repayment. As a result, it is natural that at the first signs of alarm, account holders moved their deposits. Thus, banks have lost about $100 billion in capital since the beginning of the crisis. Nearly wiping out their investment capacity.

The banks’ economic fragility was then also aided by the Federal Reserve’s – the U.S. central bank’s – consistent increase in interest rates. Making loans previously made by the lenders decidedly unaffordable for them. However, with the takeover by Jp Morgan comes the rescue in extremis of First Republic, while analysts say there are no other banks at risk of failure for now.

Read also: Is your bank solid and reliable? The 5 parameters that allow us to figure it out

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