Third US Regional Bank Failure in a Row: First Republic Bank Seized and Acquired by JPMorgan, Raising Concerns About Banking Consolidation

JPMorgan Takes Over First Republic Bank in FDIC-Managed Acquisition, Raising Questions About the Impact of Banking Consolidation on the Real Economy

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US regulators have also seized First Republic Bank ($FRC), which is the third in a row of US regional bank failures after the collapse of Silicon Valley Bank ($SIVBQ) and Signature Bank ($SBNY) in March.

The Federal Deposit Insurance Corporation has been named as the receiver and has accepted an offer from JPMorgan ($JPM) to assume all deposits, including uninsured deposits and all assets of First Republic Bank.

This includes $173 billion in loans and approximately $30 billion in securities, although it will not assume First Republic’s corporate debt or preferred stock.

“The government called on us and others to step up and we did,” JPMorgan CEO Jamie Dimon said, and continued: “Our financial strength, capabilities and business model allowed us to prepare an offer for the acquisition in a way that minimized the cost to the deposit insurance fund” (estimated at about $13 billion).

The FDIC will also enter into a loss-sharing agreement with JPMorgan for single-family, residential and commercial loans and provide $50 billion in funding to the bank.

Meanwhile, JPMorgan is set to realize a one-time gain of $2.6 billion from the deal, but expects to spend $2 billion on restructuring costs over the next 18 months.

It’s been a “crazy ride” for First Republic, which had been on the brink of failure for nearly two months. The bank’s business model, which financed cheap mortgage loans to customers from low- or zero-interest deposits, was hit when interest rates rose rapidly.

Last week, First Republic revealed that deposit outflows totaled $70 billion in Q1 2023!

The “banking turmoil” chapter that began in March appears to remain open.

A serious concern is raised: If the country’s biggest banks get even bigger, how will this translate into the real economy?

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