By Brian Cheung and Rob Wile -
NBC News
First Republic Bank has been taken over by federal regulators and will be sold to JPMorgan, making it the third major bank to go under in less than two months.
The Federal Deposit Insurance Corporation (FDIC) announced simultaneously Monday morning that it had taken over the bank and that JPMorgan Chase, the largest bank in the United States, would buy substantially all of the bank's assets and deposits. bank.
With $229.1 billion in total assets at closing, First Republic Bank has eclipsed Silicon Valley Bank ($209 billion at closing) to become the second largest bank failure in US history.
The intervention comes days after First Republic reported losing around 40% of its deposits in the first quarter of this year.
Amid rising interest rates and after the failures of Silicon Valley Bank and Signature Bank earlier this year, a growing cohort of depositors sought to move their money to banks seen as safer and offering more attractive yields.
Among midsize banks, First Republic was hardest hit by the trend: As of mid-March, about 70% of its deposits were uninsured, according to Bank of America, meaning they were over the FDIC's $250,000 guaranteed limit.
A pedestrian walks past a sign at a First Republic Bank location in San Francisco, Wednesday, April 26, 2023. Jeff Chiu / AP
That compares with a median of 55% uninsured deposits for midsize banks and the third highest level after SVB and Signature Bank.
Despite a $30 billion infusion from 11 peer banks in mid-March, First Republic was unable to stop the bleeding:
Its shares have fallen more than 75% in the last 30 days
.
The scale of the San Francisco-based lender's deposit losses was an outlier compared with other regional banks, which saw a decline of about 5% in deposits on average in 2023, according to Goldman Sachs Economic Research.
Still, First Republic's rapid run on deposits had "created a lot of anxiety in the industry," said Tim Coffey, managing director of Janney Montgomery Scott, a financial services group.
In addition to uninsured deposits, First Republic also
had many long-term, fixed-rate loans
that have begun to lose value as the Federal Reserve has repeatedly raised its benchmark rate.
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First Republic had said in a press release last week that it was seeking help to reshape its balance sheet after the run on deposits.
On Friday night, the bank said: "We are engaged in multi-party discussions about our strategic options as we continue to serve our clients."
CNBC's David Faber reported Tuesday that First Republic had been looking to sell assets to larger banks while raising additional capital, but it was unclear whether other banks would be willing to buy.
Bloomberg News further reported that First Republic was looking to sell up to $100 billion in loans and securities to restructure its balance sheet.
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The lender had already ruled out a full sale to another bank, Faber reported.
On Friday afternoon, Reuters was reporting that an FDIC seizure was imminent after hopes of finding a solution in the private sector failed.
Over the weekend, the government moved to accept offers for First Republic, as the FDIC expected to announce the closure of the company along with a purchase agreement.
JPMorgan Chase was the winner.
“Our government invited us and others to step up, and we did,” JPMorgan Chase CEO Jamie Dimon said in a statement Monday morning.
"Our financial strength, capabilities and business model allowed us to develop an offer to execute the transaction in a way that minimizes costs to the Deposit Guarantee Fund."
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First Republic's 84 branches
in eight states will reopen Monday as branches of JPMorgan Chase.
[The Federal Reserve expects a mild recession at the end of 2023]
The FDIC estimates the cost of receiving First Republic's receivership to be about $13 billion, less than the $20 billion it estimated as the cost of failing Silicon Valley Bank.