The crisis in the financial system that the United States has been suffering since the beginning of the year has taken its toll on a new regional bank. The Federal Deposit Insurance Corporation (FDIC) announced on Monday the intervention of First Republic Bank, its closure and the sale of its assets and accounts to the giant JPMorgan Chase “in order to protect depositors” , according to a statement from the state authority.
The FDIC will assume a cost of 13 billion dollars for the operation, about 11.8 billion euros, while JPMorgan will pay 10.6 billion dollars. The purchase agreement also includes unsecured deposits and virtually all assets. First Republic had assets valued at $229.1 billion and deposits for approximately $103.9 billion at the beginning of April.
With this, there are already three banks that have collapsed this year in the United States, after Silicon Valley Bank (SVB) and Signature Bank. Headquartered in San Francisco, focused on private banking and high-net-worth clients, it is the second largest failure of a retail bank in US history, after Washington Mutual in 2008.
The Department of the Treasury has valued above all that the liquidation occurs with the lowest cost. “The country’s banking system remains solid and resilient,” a spokesman said. “Bankruptcies are inevitable in a dynamic and innovative financial system,” said the FDIC.
Distrust had taken hold of the bank and the patches had no effect. After a flight of deposits that has exceeded 100 billion dollars in recent weeks and a stock market fall of 97% this 2023, the financial authorities of California saw no other option but to intervene in the early hours of Monday entity and deliver it to the FDIC. The regulator placed the bank in a “highly competitive” auction to JPMorgan Chase, which submitted the bid that assumed the minimum losses for the deposit guarantee fund. PNC Financial Services and Citizens Financial also showed interest.
It was a matter of hours. The major Wall Street bank will keep most of the assets – the quoted $229.1 billion – and all of First Republic’s deposits, including uninsured deposits – above $250,000. In total the deposits amount to about 92 billion dollars or 84 billion euros, according to Bloomberg.
The operation implies that its 173,000 million in loans, about 158,000 million euros, will be revised downwards, and that the FDIC will assume part of these losses.
The 84 offices of First Republic, spread over eight states, reopened yesterday under the baton of JP Morgan and customers will move from one to another entity. “The Government invited us to take a step forward and we have done it,” said the president and CEO of JP Morgan, Jamie Dimon. “Our financial strength, our capabilities and our business model allowed us to make an offer that minimized the costs to the FDIC,” added the manager.
The entity earned almost 300 million dollars in the first quarter, 33% less than last year, but at the end of March the worst had not yet come. JP Morgan estimates that it will bring about 500 million in annual profit.
SVB and Signature fell due to their large exposure to the technology sector, affected by the rise in interest rates, and a flight of deposits made mainly at the click of a button. After these falls, the First Republic was in the spotlight. Eleven financial institutions agreed to inject $30 billion. Among which there was the same JP Morgan or Goldman Sachs. This has finally proved to be a patchwork, and after its collapse in the stock market, there has been no choice but to intervene.
