United States regulators said on Monday First Republic Bank has been seized and a deal agreed to sell the bank to JPMorgan Chase & Co, in what is the third major U.S. institution to fail in two months.
The banking giant will take $173 billion of loans and about $30 billion of securities of First Republic Bank including $92 billion of deposits, JPMorgan said in a statement. It is not assuming the bank's corporate debt or preferred stock.
First Republic Bank shares tumbled 36% in premarket trading. The stock has lost 97% of its value this year. JP Morgan shares rose 2.6% while S&P 500 futures were trading flat.
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.
The California Department of Financial Protection and Innovation announced early on Monday it had taken possession of First Republic and the Federal Deposit Insurance Corporation (FDIC) would act as its receiver.
The FDIC estimated in a statement that the cost to the Deposit Insurance Fund would be about $13 billion. The final cost will be determined when the FDIC terminates the receivership.
The rescue comes less than two months after Silicon Valley Bank and Signature Bank failed amid a deposit flight from U.S. lenders, forcing the Federal Reserve to step in with emergency measures to stabilize markets. Those failures came after crypto-focused Silvergate voluntarily liquidated.
"Our government invited us and others to step up, and we did," said Jamie Dimon, Chairman and CEO of JPMorgan Chase. “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."
JPMorgan said it expected to achieve a one-time, post-tax gain of approximately $2.6 billion after the deal which did not reflect an estimated $2 billion dollars of post-tax restructuring costs likely over the next 18 months.
It said the bank would be "very well-capitalized" after with a common equity tier one (CET1) ratio consistent with its first quarter 2024 target of 13.5%, and maintain healthy liquidity buffers.
The failed bank's 84 offices in eight states will reopen as branches of JPMorgan Chase Bank from Monday, according to the JPMorgan statement.
JPMorgan has been on an acquisition spree since 2021, acquiring more than 30 companies in deals worth more than $5 billion combined.
In recent years, U.S. regulators have been slow to approve large bank deals. The Biden administration has also cracked down on anti-competitive practices.
