JPMorgan Chase & Co announced on Monday that it will acquire most of First Republic Bank’s assets after the U.S. government seized the troubled bank over the weekend, marking the third major U.S. lender to fail in two months. The deal involves JPMorgan making a payment of $10.6 billion to the U.S. Federal Deposit Insurance Corp (FDIC) as part of the deal to buy most of the San Francisco-based lender’s assets.
As part of the deal, JPMorgan has also entered into a loss-share agreement with the FDIC on single-family, residential, and commercial loans it bought but will not take First Republic Bank’s corporate debt or preferred stock. The agreement allows for an orderly failure of First Republic and avoids the need for regulators to insure all deposits, as they had to do when two other banks failed last month.
The acquisition came after a weekend auction and makes the largest U.S. bank even bigger. First Republic Bank shares tumbled 43.3% in pre-market trading before being halted, and JP Morgan shares rose 2.7%.
First Republic came under intense pressure after disclosing last week that it had suffered more than $100 billion in outflows in the first quarter and was exploring options. This renewed stress on the banking sector, which was reeling from the closure of Silicon Valley Bank and Signature Bank in March, while Swiss lender Credit Suisse was bought by rival UBS in a state-engineered takeover.
JPMorgan was one of several interested buyers, including PNC Financial Services Group and Citizens Financial Group Inc, which submitted final bids on Sunday in an auction being run by U.S. regulators, sources familiar with the matter said over the weekend. PNC shares were 2.5% lower in pre-market trading.
The deal highlights the ongoing challenges in the banking sector, particularly for smaller lenders. First Republic Bank had struggled with outflows and was forced to explore options before ultimately being seized by regulators. The acquisition by JPMorgan is likely to bring about significant changes for the bank’s customers and employees.
JPMorgan’s acquisition of First Republic Bank also comes amid growing concerns about the consolidation of power in the banking industry. The acquisition will make JPMorgan even larger, raising concerns about the potential for antitrust violations and the concentration of financial power in a small number of institutions.
Despite these concerns, JPMorgan’s acquisition of First Republic Bank is likely to be seen as a positive development by many investors, as it provides the bank with a significant opportunity to expand its customer base and increase its market share. The acquisition also underscores the continued importance of scale and market power in the modern banking industry.
Overall, JPMorgan’s acquisition of First Republic Bank is likely to have significant implications for the U.S. banking industry and the broader economy. The consolidation of power in the banking industry is likely to continue, raising concerns about the potential for antitrust violations and the concentration of financial power in a small number of institutions. However, the acquisition also provides JPMorgan with a significant opportunity to expand its customer base and increase its market share, highlighting the continued importance of scale and market power in the modern banking industry.
The purchase of First Republic Bank’s assets by JPMorgan marks the latest in a series of failures in the U.S. banking sector, which has been hit hard by the economic fallout from the COVID-19 pandemic. With the acquisition, JPMorgan is set to become even bigger, consolidating its position as the largest U.S. bank.
The failure of First Republic Bank had been expected for some time, as the bank had been struggling with outflows of more than $100 billion in the first quarter of this year alone. This had put it under immense pressure, and it had been exploring options to try and stave off failure.
