US regulators seize First Republic Bank, to sell assets to JPMorgan

The California Department of Financial Protection and Innovation announced today, May 1, that the Federal Deposit Insurance Corp. (FDIC) took possession of troubled First Republic Bank, marking the third time the US government takes control of a US lender this year.

This emergency government-led intervention came after a last-ditch effort to persuade rival lenders to keep the ailing bank afloat failed.

In a statement today, the Californian financial regulator said JPMorgan Chase & Co., the US largest bank, was chosen to purchase a “substantial amount of [First Republic Bank’s] assets and certain liabilities,” including $93.5 billion in deposits and excluding corporate debt or preferred stock.

First Republic Bank’s stock lost 9% of its value so far this year.

FDIC, being the receiver, shut down First Republic in the run-up to JPMorgan’s takeover.

With $229.1 billion in total assets at the time of closure, and being the 14th largest US lender in 2022, First Republic Bank has eclipsed Silicon Valley Bank’s (SVB) collapse earlier this year ($209.0 billion at the time of closure) to become the second-largest bank failure in US history, following that of Washington Mutual in 2008.

The FDIC projected, in a separate statement, the cost of First Republic Bank's receivership will be about $13 billion, less than the $20 billion estimated in losses from the SVB crisis.

Under the takeover, JPMorgan will take $173 billion of loans and about $30 billion of securities of First Republic Bank.

The banking giant expected to achieve a one-time, post-tax gain of around $2.6 billion after the acquisition. However, this does not reflect an estimated $S2 billion of post-tax restructuring costs likely over the next 18 months.

First Republic Bank’s collapse came as a deposit drain, fueled by the twin failures of SVB and Signature Bank, forced the US lender to borrow heavily from the Fed to maintain operations, which pressured margins as its cost of funding is far higher now.

According to BCA Research chief strategist Doug Peta, First Republic Bank accounted for roughly 72% of all borrowing from the Fed’s discount window recently.