First Republic Bank shares tumbled 43.3 per cent in premarket trading. The stock has lost 97 per cent of its value this year. JP Morgan shares rose 2.7 per cent.
“The wall of worry may ease. Resolving FRC should end the seven-week post-SVB bank crisis phase,” Wells Fargo analysts wrote in a note late on Sunday before the deal was announced.
“Mid-cap bank earnings have shown that deposit concerns are isolated to a handful of banks, and the challenges at SIVB and FRC are not indicative of the group’s (mid-sized banks’) resiliency.”
JPMorgan was one of several interested buyers including PNC Financial Services Group, and Citizens Financial Group, which submitted final bids on Sunday in an auction being run by US regulators, sources familiar with the matter said over the weekend.
PNC shares were 2.5 per cent lower in premarket trading.
The California Department of Financial Protection and Innovation said it had taken possession of First Republic and the Federal Deposit Insurance Corporation (FDIC) would act as its receiver.
The FDIC estimated in a statement that the cost to the Deposit Insurance Fund would be about US$13 billion. The final cost will be determined when the FDIC terminates the receivership.
STEPPING UP
The rescue comes less than two months after a deposit flight from US lenders forced the Federal Reserve to step in with emergency measures to stabilise markets. Those failures came after crypto-focused Silvergate voluntarily liquidated.
“Our government invited us and others to step up, and we did,” said Jamie Dimon, Chairman and CEO of JPMorgan Chase. “Our financial strength, capabilities and business model allowed us to develop a bid to execute the transaction in a way to minimise costs to the Deposit Insurance Fund.”
JPMorgan said it expected to achieve a one-time, post-tax gain of approximately US$2.6 billion after the deal which did not reflect an estimated US$2 billion dollars of post-tax restructuring costs likely over the next 18 months.
It said the bank would be “very well-capitalised” after with a common equity tier one (CET1) ratio consistent with its first quarter 2024 target of 13.5 per cent, and maintain healthy liquidity buffers.
The failed bank’s 84 offices in eight states will reopen as branches of JPMorgan Chase Bank from Monday, according to the JPMorgan statement.
JPMorgan has been on an acquisition spree since 2021, acquiring more than 30 companies in deals worth more than US$5 billion combined.
In recent years, US regulators have been slow to approve large bank deals. The Biden administration has also cracked down on anti-competitive practices.
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