US Regulators Seize Control of First Republic Bank

The US regulators have seized control of First Republic Bank, making it the third financial institution taken under government control this year, then promptly accepted a bid from JPMorgan Chase for virtually the lender’s all assets.

The state’s Department of Financial Protection and Innovation (DFPI) on Monday said it had taken over San Francisco-based First Republic and appointed the Federal Deposit Insurance Corporation (FDIC) as receiver.

The DFPI also said the FDIC has accepted a bid from JPMorgan Chase Bank, National Association, Columbus, Ohio, to assume all deposits, including all uninsured deposits, and substantially all assets of First Republic Bank.

The DFPI said it acted under California law regarding a financial entity the law describes as conducting its business in an unsafe or unsound manner and being in a condition that is unsafe or unsound” to carry out banking business.

A Reuters report said that Federal officials from the FDIC, Treasury Department and Federal Reserve held private talks with other banks on Friday last hoping to find a bailout plan for First Republic, but no private rescue materialised. Takeover talks continued all weekend in the hope a deal could be struck before US stock markets opened Monday.

Before entering receivership First Republic shares had lost 97% of their value since January, taking more than $21 billion off First Republic’s market value.

In a statement, JPMorgan CEO Jamie Dimon said on Monday that the US government officials had invited the company, the biggest U.S. bank with $3.7 trillion in assets, along with other lenders, to step up, and they did.

“This acquisition modestly benefits our company overall, it is accretive to shareholders, it helps further advance our wealth strategy and it is complementary to our existing franchise,” Dimon said.

Second-biggest Bank Failure

First Republic has $229 billion in assets, making it the second-biggest bank to collapse in US history after the 2008 failure of Washington Mutual, which at the time had roughly $309 billion. The FDIC estimated the cost to the Deposit Insurance Fund at about $13 billion. 

“Treasury is encouraged that this institution was resolved with the least cost to the Deposit Insurance Fund, and in a manner that protected all depositors,” the US Treasury Department said in a statement.

“The banking system remains sound and resilient, and Americans should feel confident in the safety of their deposits and the ability of the banking system to fulfil its essential function of providing credit to businesses and families,” the statement added.

The move by regulators to assume control of First Republic came one week after First Republic revealed that customers had resorted to panic withdrawals amounting to more than $100 billion which further fuelled concerns the company couldn’t survive on its own.

First Republic follows the March collapses of  $210 billion Silicon Valley Bank and, only days later, of Signature Bank, both of which were seized by government regulators after experiencing bank runs. As with Silicon Valley, a significant share of First Republic’s deposits was uninsured, which made it more prone to withdrawals from skittish customers.

In a rare move, 11 of the nation’s largest financial institutions gave First Republic $30 billion in deposits last month to prop up the troubled bank, but the effort failed to assuage concerns about the bank’s viability.

In a report, US analyst for Gavekal Research Tan Kai Xian said that the latest bank failure could cause other lenders to tighten credit and raise the cost of interbank loans, which is a potential problem for the smaller institutions.