First Republic Bank seized by regulators, then sold to JPMorgan Chase

Regulators seized control of First Republic Bank early Monday, making it the third financial institution taken under government control this year, then accepted a bid from JPMorgan Chase for virtually all of the lender’s assets. California’s Department of Financial Protection and Innovation (DFPI) 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.

” In a news conference on Monday to discuss the acquisition, JPMorgan CEO Jamie Dimon said that First Republic locations will be converted into JPMorgan wealth management centers over the next 18 months. JPMorgan will make a “modest” one-time $2. 6 billion gain by acquiring First Republic but will also spend another $2 billion restructuring the regional bank, he added.

“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,” he said. JPMorgan will gain $92 billion in customer deposits and also absorb $173 billion in outstanding First Republic loans. Federal officials from the FDIC, Treasury Department and Federal Reserve held private talks with other banks on Friday hoping to find a bailout plan for First Republic, Reuters reported , but no private rescue materialized.

Takeover talks continued all weekend in the hope a deal could be struck before U. S. stock markets opened Monday.

Dimon said about 800 JP Morgan employees worked day and night last weekend, researching and setting up the First Republic deal. Bringing in First Republic helps further stabilize the U. S.

banking system, Dimon said. 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. Second-biggest bank failure in U.

S. history First Republic has $229 billion in assets, making it the second-biggest bank to collapse in U. S.

history after the 2008 failure of Washington Mutual, which at the time had roughly $309 billion and which also was sold to JPMorgan. 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,” A U.

S. Treasury Department spokesman 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 fulfill its essential function of providing credit to businesses and families.

‘ The move by regulators to assume control of First Republic came one week after First Republic revealed that customers had withdrawn more than $100 billion during a panic last month — a revelation that further fueled 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 were uninsured, which made it more prone to withdrawals from skittish customers.

Gary Cohn says First Republic’s likely sale “will be a much faster process” than SVB collapse 07:17 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. Under Monday’s deal with JPMorgan, the funds will be returned to the firms, according to TD Cowen analyst Jaret Seiberg. Dimon said Monday that the $30 billion gave First Republic and others in the finance world enough time to figure out a long-term solution for the struggling lender.

On the CBS News broadcast “Face the Nation” Sunday, Gary Cohn, a former Goldman Sachs president who served as former President Donald Trump’s top economic adviser, was on-target, predicting that, “The FDIC would prefer to sell the bank in its entirety than the pieces. What will most likely happen is the FDIC will seize control and then simultaneously resell the asset to the successful bidder. ” Cohn is now IBM vice chairman.

The latest bank failure could cause other lenders to tighten credit and raise the cost of interbank loans, Tan Kai Xian, U. S. analyst for Gavekal Research, said in a report, a potential problem for smaller institutions.

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Brooks Khristopher J. Brooks is a reporter for CBS MoneyWatch covering business, consumer and financial stories that range from economic inequality and housing issues to bankruptcies and the business of sports. Twitter.