After two months of pressure, spiraling losses of deposits from worried customers, mountains of debt, and no clear way out of a downward spiral, First Republic Bank is no more, in the second largest collapse of a U.S. bank. Early in the hours of May 1, the Federal Deposit Insurance Corporation closed the institution and sold all deposits and “substantially” all assets to JPMorgan Chase Bank, according to the FDIC.
The sale was the culmination of a week of the FDIC looking for potential bidders and produced a “highly competitive bidding process” in which the banks had to deliver bids by noon on Sunday.
As of April 13, 2023, First Republic Bank held $229.1 billion in assets and $103.9 billion in total deposits. JPMorgan Chase has assumed all of the deposits and “agreed to purchase substantially all of First Republic Bank’s assets.”
All 84 offices in eight states will reopen on Monday as branches of JPMorgan Chase during normal business hours. All deposits move with the sale and depositors will have full access to all their deposits.
“Deposits will continue to be insured by the FDIC, and customers do not need to change their banking relationship in order to retain their deposit insurance coverage up to applicable limits,” the FDIC wrote. “Customers of First Republic Bank should continue to use their existing branch until they receive notice from JPMorgan Chase Bank, National Association, that it has completed systems changes to allow other JPMorgan Chase Bank, National Association, branches to process their accounts as well.”
JPMorgan Chase and the FDIC also entered a loss-share transaction in which both would share costs and potential recoveries from single family, residential, and commercial loans that the bank bought from First Republic.
Although problems had been brewing for some time, the collapse and closing of Silicon Valley Bank and Signature Bank in March had set off a chain reaction that was pulling First Republic into a whirlpool of distrust and fleeing deposits. Massive loans and an influx of $30 billion in deposits from a consortium of 11 of the largest banks in the country couldn’t stabilize the bank.
In Q1, First Republic revenues were down $1.2 billion, or 13.4%, year over year, according to the bank’s financial results. Net income, down 32.9%. Diluted earnings per share, off by 38.5% from 2022—a big miss from analyst expectations. Deposits were down by 40.8% from the previous quarter, or 35.5% year over year. Borrowings were up 18.4 times from the previous year, from $5.5 billion to $106.7 billion. It was unsustainable.
The FDIC estimates that the cost of the closure and sale will be approximately $13 billion, though that will come from proceeds of the process and money from the Deposit Insurance Fund, which receives its funding from deposit insurance premiums from banks and interest on FDIC-held government bonds.