“American First Republic Bank Collapses, Assets Sold to JP Morgan”

The American First Republic Bank has collapsed. The California regulator DFPI seized the bank, the Federal Deposit Insurance Corporation (FDIC) placed in receivership and sold all of the bank’s assets to JPMorgan Chase. First Republic’s 84 affiliates will open today in the US as affiliates of JP Morgan.

First Republic Bank had $229.1 billion under management and is the third US bank to fail this year. Earlier this year, the curtain fell on Silicon Vally Bank and Signature Bank. In addition, the Swiss Credit Suisse, which was in very bad weather, was taken over by UBS.

Also read | US regulator seeks buyer beleaguered First Republic Bank

Multiple requests, no agreement

The US regulator FDIC had asked several financial institutions, including JPMorgan Chase, PNC and Citizens Financial, to make a takeover bid for the ailing First Republic Bank over the weekend. Bank of America and US Bancorp were also invited, but they decided not to bid, according to Bloomberg news agency.

Since no agreement could be reached on an outright purchase of First Republic, regulators seized the bank first. After that, all bank balances of $93.5 billion and most of the assets were sold to JPMorgan.

“Our government invited us and others to get involved, and we did,” said JP Morgan CEO Jamie Dimon. “This acquisition provides our business with a modest benefit overall, is good for shareholders, helps advance our asset strategy and is complementary to our existing franchise.”

Text continues below the tweet

The brief takeover of the bank allowed the FDIC to enter into a loss-sharing agreement with JPMorgan. This relates to the possible losses in the bank’s loan portfolio as a result of the sharp rise in interest rates.

The bank’s mortgages, which had been issued at relatively low interest rates to mainly attract wealthy customers, have fallen significantly in value and would incur substantial losses if they were sold. The FDIC estimates losses to its insurance fund will be about $13 billion.

The deal also means that all customers, including those with balances above the $250,000 guarantee limit, will continue to have access to all of their funds when the bank reopens Monday.

Also read | Fed: fall Silicon Valley Bank textbook example of mismanagement

Will more banks fall?

House economist Han de Jong says that ‘a great and unwise risk has been taken by financing assets with a low interest rate with liabilities on which the interest rate has risen very sharply in the past year’. This problem of the First Republic Bank also played a role in Silicon Valley Bank. Nevertheless, De Jong does not expect this problem to occur at many more banks. “There will always be more cases like this. But this is not typical for the entire banking system.”

US regulators were busy securing the sale of California bank First Republic, but of the six banks interested, two quickly pulled out. “It’s taking longer than expected,” says FD journalist Lennart Zandbergen. JP Morgen eventually took over the bank. First Republic has many wealthy clients and has run into problems by providing mortgages to purchase very expensive real estate.