First Republic Bank (FRB), which teetered on the brink of collapse in the weeks following the Silicon Valley Bank crisis, has finally collapsed, but with a relatively quick fix for the next chapter: Today, the Federal Deposit Insurance Corporation (FDIC) ) announced that it was being shut down by the California Department of Financial Protection and Innovation, that the FDIC was appointed as trustee, and that the FDIC would sell the assets to JPMorgan.
His assets and deposits add up to just over $330 billion.
Specifically, “to protect depositors, the FDIC is entering into a purchase and acquisition agreement with JPMorgan Chase Bank, National Association, Columbus, Ohio, to acquire all of First Republic Bank’s deposits and substantially all of its assets,” it said.
The FDIC also confirmed that deposits will continue to be insured by the FDIC at an estimated cost of approximately $13 billion to its insurance fund. The deal covers assets of $229.1 billion and $103.9 billion in total deposits. JPMorgan buys all assets and deposits, along with 84 offices in eight states, with all of FRB’s depositors now being clients of JPMorgan Chase.
The news comes after several days of speculation that the FRB would collapse, sending the stock into a death spiral. JPMorgan, along with PNC, were among the banks that made a bid this weekend. The FDIC called the process “highly competitive”.
Like Silicon Valley Bank, First Republic has been an important banking partner in the technology world as it grew into a huge and highly valuable industry. That meant it would almost certainly fall into SVB’s blast radius if it collapsed.
To avoid a contagion effect, First Republic was quick to send messages about its own state of stability in the wake of the SVB’s failure. So just as SVB started selling its assets – in fact at the same time that SVB announced the sale of its UK operations to HSBC – First Republic bolstered its position with massive funding injections to bring its reserves to $70 billion. One of those major funders was the FDIC. The other? JPMorgan.
Yet it seems that this was not enough. The wavering confidence in companies that were too dependent on the same industry as SVB drove people away from First Republic, both as a customer and as an investor.
The FDIC has had to face its own drama and criticism – some blame the collapse of the SVB on US regulators not acting quickly or decisively enough before it was too late – so this was a relatively quick move on its part . While the estimated cost to the Deposit Insurance Fund is approximately $13 billion, the final amount will be determined when it is no longer in receivership.
In addition to this deal, the FDIC, JPMorgan Chase Bank and National Association “are also entering into a loss equity transaction on single-family, residential and commercial loans they purchased from the former First Republic Bank,” it added. The FDIC is the recipient, while JPMorgan Chase Bank and National Association “will share in the losses and potential recoveries on the loans covered by the loss-share agreement.” It’s not clear what the value of that aspect of the deal is.