Wall Street titan JP Morgan has swooped in for crisis-hit First Republic Bank, marking the third big American bank to collapse in just over a month and the second largest failure ever, US authorities announced today.
The Federal Deposit Insurance Corporation (FDIC) confirmed they had accepted a bid from JP Morgan to seize the majority of First Republic’s assets and all of its deposits, bringing an end to weeks of speculation over whether a deal could be struck.
The shotgun marriage has been sparked by American consumers sweating over the ability of the country’s banking system to sustain aggressive interest rate hikes by the US Federal Reserve.
Rumours over the First Republic’s future grew last week as its shares fell 75 per cent following revelations that the firm had suffered over $100bn (£80bn) in deposit outflows in the first quarter.
“The collapse of First Republic Bank is no big surprise… but it’s a timely reminder that banking turmoil will continue to flare up periodically,” Paul Ashworth, chief north America economist at consultancy Capital Economics, said.
In March, Silicon Valley Bank, a tech focused lender, collapsed, prompting customers to question the strength of other US lenders’ finances. European bank Credit Suisse also failed and was pawned off to its largest rival UBS, amplifying anxieties over whether other big banks could drop.
Signature Bank, another US lender, failed recently.
JPMorgan will acquire approximately $173bn (£138bn) of loans and approximately $30bn (£24bn) of securities from the US mid-sized lender First Republic. It will also absorb its physical stores.
Jamie Dimon JP Morgan chairman and chief executive, said: “Our government invited us and others to step up, and we did.”
“Our financial strength, capabilities and business model allowed us to develop a bid to execute the transaction in a way to minimize costs to the Deposit Insurance Fund.”
Major American banks had put $30bn (£24bn) into First Republic in March, in an attempt to steady the ship.
The FDIC protects Americans’ deposits up to $250,000, but authorities extended it to cover all cash tied up in SVB, raising expectations they could do the same with First Republic.
Efforts had ramped up to try to find a private sector solution to get money out of First Republic in recent weeks. The sale to JP Morgan should limit losses to the taxpayer, who typically step in to cover customers’ deposits when a bank fails.
First Republic branches opened as normal today.