First Republic Bank was seized by government regulators, who accepted a bid from JPMorgan Chase to acquire the assets of the beleaguered lender, the California Department of Financial Protection and Innovation announced early Monday morning.
JPMorgan—the country’s largest bank—agreed to take on all of First Republic’s deposits and “substantially all assets.” As of April 13, 2023, First Republic Bank, based in San Francisco, had total assets of approximately $229.1 billion and total deposits of approximately $103.9 billion.
First Republic's 84 offices in eight states will reopen as branches of JPMorgan Chase on Monday morning, said the Federal Deposit Insurance Corporation—which was appointed as the bank’s receiver—in a press release. Customers of First Republic Bank should continue to use their existing branch until they receive notice from JPMorgan Chase that the systems have been merged. Deposits now managed by JPMorgan will be insured up to the FDIC limit of $250,000.
The announcement marks a precipitous fall for First Republic, which saw its stock price plummet by more than 95% from the beginning of the year as it desperately sought a rescue plan to avoid a government takeover. Its failure marks the third major bank closure of the year, following Silicon Valley Bank and New York-based Signature Bank, which closed within two days of each other in March.
First Republic’s downward slide was accelerated by a disastrous earnings report on April 24, when the lender revealed that it lost more than $100 billion in deposits last quarter. A plan to restructure its balance sheet and cut costs by eliminating up to 25% of its staff was not enough to quell investor unease; the bank’s share price closed at $3.51 on Friday.
JPMorgan was part of a coalition of banks that deposited $30 billion into First Republic on March 16, which served to temporarily stabilize the bank but failed to instill confidence among shareholders.
Federal officials were reportedly scrambling to find a buyer for the bank prior to the markets opening on Monday. Other banks that put in bids to take over First Republic were PNC Financial Services Group and Citizens Financial Group, according to the Financial Times.
First Republic’s efforts to find a white knight prior to its seizure by the government were complicated by accounting rules that would require the buyer to “mark to market” its assets, meaning immediately realizing losses on the books.
First Republic had been forced to borrow heavily to make up for deposit outflows. As of April 28, First Republic had a combined total of $121.3 billion in outstanding borrowings from the Federal Reserve and the Federal Home Loan Bank Board. First Republic’s financial situation made additional borrowing from federal authorities at viable rates impossible.
As part of the deal made with federal officials, the FDIC and JPMorgan Chase are also entering into a loss-share agreement on single-family, residential and commercial loans it purchased from First Republic.
The FDIC estimates that the cost to the Deposit Insurance Fund will be about $13 billion.
"I am pleased we were able to deal with First Republic’s failure without using the FDIC’s emergency powers," said FDIC board member Jonathan McKernan in a statement.
Founded by Jim Herbert in 1985, First Republic specialized in high-touch service and wealth management, focused on a high-net-worth clientele whom it lured through attractive mortgage and loan rates.
However, it was those exact customers who were likely to pull their deposits when news of the First Republic's distress spread. Additionally, a collection of low-interest loans held by the bank declined in value as federal interest rates ticked up over the past year.
First Republic was the Bay Area's third-largest bank and the 14th-largest in the U.S. at the end of last year, with 44% of its deposits originating in the Bay Area.
At the end of 2022, it held $98.8 billion worth of loans in single-family homes, $21.6 billion in multifamily properties and another $14 billion in construction and development loans. The company had 7,213 employees at the end of last year.
Editor's Note: This story has been updated with newly provided numbers by the FDIC on First Republic's approximate total assets and deposits as of April 13.
Kevin Truong can be reached at [email protected]