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JPMorgan Acquires First Republic Bank Amidst Recent Failures of Major US Banks

JPMorgan Acquires First Republic Bank

American regulators announced that First Republic Bank had been taken over and that an agreement had been reached to sell the bank to JPMorgan Chase & Co. This marks the third major U.S. financial institution to fail in just two months. JPMorgan is set to acquire $173 billion in loans and around $30 billion in securities, which includes $92 billion in deposits from First Republic Bank, but they are not taking on the bank’s corporate debt or preferred stock.

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JPMorgan Acquires First Republic Bank: Key Points

  • Following the announcement, shares in First Republic Bank fell by 36% in premarket trading, having already lost 97% of their value this year.
  • In contrast, JPMorgan’s shares increased by 2.6%, while S&P 500 futures remained unchanged.
  • JPMorgan was one of several potential buyers, including PNC Financial Services Group and Citizens Financial Group Inc, who submitted final bids in an auction overseen by U.S. regulators, according to sources familiar with the situation.
  • The California Department of Financial Protection and Innovation announced that it had seized control of First Republic and the FDIC would serve as its receiver.
  • The FDIC predicts that the cost to the Deposit Insurance Fund would be around $13 billion, but the final amount will be determined once the receivership ends.
  • This action follows the recent failures of Silicon Valley Bank and Signature Bank due to a deposit flight from U.S. lenders, which led to emergency interventions by the Federal Reserve to stabilize markets.
  • Additionally, Silvergate, which was focused on cryptocurrency, recently decided to liquidate voluntarily.

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JPMorgan Acquires First Republic Bank: Restructuring expenses

  • JPMorgan anticipates earning a one-time, after-tax profit of around $2.6 billion from the deal, but this figure does not include an expected $2 billion of post-tax restructuring expenses likely to occur over the next 18 months.
  • Nevertheless, the bank will still have a strong capital position, with a common equity tier one ratio of 13.5%, in line with its Q1 2024 target, and sufficient liquidity reserves.
  • The bank has confirmed that the failed bank’s 84 offices across eight states will become JPMorgan Chase Bank branches from next week.

Since 2021, JPMorgan has purchased over 30 companies in transactions worth more than $5 billion in total. Large bank deals have faced slow regulatory approval in the US in recent years, and the Biden administration has toughened its stance on anti-competitive practices.

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