JPMorgan Chase
will assume all deposits of
First Republic Bank
and take over the bulk of the the San Francisco-based bank’s assets after it was closed by the Federal Deposit Insurance Corp.
First Republic (ticker: FRC) shares plunged 46% in premarket trading to $1.90. JPMorgan shares rose 3.6%.
First Republic’s 84 offices will be taken over by JPMorgan (JPM), the FDIC said in a statement Monday. JPMorgan said it wasn’t assuming First Republic’s corporate debt or preferred stock. The transaction is expected to add to JPMorgan’s earnings and will generate more than $500 million of incremental net income per year.
JPMorgan also will “purchase substantially all of First Republic Bank’s assets,” the FDIC said. As of April 13, that was about $221.1 billion in total assets and $103.9 billion in deposits. The FDIC and JPMorgan will share in losses on single family, residential, and commercial loans.
“The loss–share transaction is projected to maximize recoveries on the assets by keeping them in the private sector,” the FDIC said. “The transaction is also expected to minimize disruptions for loan customers.”
The FDIC said the cost to the Deposit Insurance Fund will be about $13 billion.
Rival banks that were reported to be bidding for First Republic slipped in early trading.
Citizens Financial Group
(CFG) declined 0.3%.
PNC Financial
(PNC) retreated 1.9%.
“Our government invited us and others to step up, and we did,” said JPMorgan CEO Jamie Dimon in a statement. “Our financial strength, capabilities and business model allowed us to develop a bid to execute the transaction in a way to minimize costs to the Deposit Insurance Fund.”
Investors lost confidence in First Republic after it reported last week that it lost $72 billion in deposits in the first quarter, raising concern that it was no longer viable.
The episode follows spell of turmoil among bank stocks in March. That led to the failure of Silicon Valley Bank and Signature Bank. First Republic was rescued at the time when JPMorgan and a handful of other larger lenders offered to inject $30 billion of deposits into the lender.
Other regional banks were edging down Monday.
PacWest Bancorp
(PACW) slipped 2% in premarket trading,
Western Alliance
(WAL) was down 0.2%, and
KeyCorp
(KEY) was up 0.1%.
Write to Brian Swint at brian.swint@barrons.com
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