Jp Morgan saves First Republic Bank by acquiring assets for $229 billion. The unexpected bailout of the second largest bank failure in US history.
The First Republic Bank is saved thanks to Jp Morgan, which with an operation worth $229.1 billion will acquire most of the bank’s assets. This was announced in a statement by the US regulatory authority, reported by the Wall Street Journal. This is the second largest bank failure in US history after Washington Mutual in 2008.
First Republic saves thanks to Jp Morgan, what happened
Federal regulators have announced the sale of most assets to Jp Morgan Chase & Co, after placing the bank under receivership. First Republic Bank was founded in 1985 and was the 14th largest bank in the United States earlier this year. However, the crisis that hit US banking institutions in the last period, with the collapse of Silicon Valley Bank and Signature Bank has radically compromised the financial balance. Thus, in recent months, the shares of First Republic Bank have almost entirely lost their value.
The various rescue attempts have failed to stem the crisis and the US giant is safe only thanks to the agreement stipulated with Jp Morgan by the Federal deposit insurance corporation. The latter, which provides guarantees on current accounts, has in fact closed the activities of First Republic, which will be purchased for the most part by the New York multinational for a total of $229.1 billion of assets. It will always be Jp Morgan to take over all the 103.9 billion deposits of the First Republic Bank.
With the crisis that began more than a month ago and the failed recovery attempts, the collapse of First Republic shares on the stock exchange has in fact continued to continue, in parallel with the withdrawal of deposits by account holders worried about possible losses. In fact, in mid-March, the bank obtained a deposit of 30 billion dollars, thanks to the agreement reached by US Treasury Secretary Janet Yellen with the most important banks in the country, including Jp Morgan, also:
- Wells Fargo;
- Bank of America;
- Morgan Stanley;
- Goldman Sachs.
The sudden intervention was not enough to reassure investors and after a brief stop due to the manoeuvre, the stock market crash resumed, just as happened with other financial institutions. In the first months of 2023, the San Francisco bank recorded a 97% drop in the value of its shares, thanks to deposit outflows and investor discretion. In fact, a week ago, precisely on April 26, the First Republic Bank suffered yet another decline in capitalization, falling below $1 billion.
First Republic Bank failure, contagion risk avoided
Thus, US supervision has worked hard to resolve the crisis in a short time, in an attempt to anticipate the opening of Asian stock exchanges and avoid the knock-on effect on the banking system. As happened with the collapse of the Silicon Valley Bank, the repercussions that the failure of the First Republic would have caused were feared. Indeed, the banks in question have similar characteristics, including several similarities in the triggers of the crisis.
Since these are medium-sized banks, where most of the customers are corporate, current accounts are quite substantial and exceed the limit (equal to $250,000) within which US law guarantees reimbursement for bankruptcy. Consequently, it is natural that at the first warning signs account holders moved their deposits. Thus, the bank has lost about $100 billion of capital since the beginning of the crisis, almost eliminating its investment capacity.
The economic fragility of the banks was then also favored by the substantial increase in the interest rate by the Federal Reserve - the US central bank - making the loans previously granted by the credit institutions decidedly not very convenient for them. However, with the acquisition by Jp Morgan, the First Republic is bailed out in extremis, while according to analysts there are currently no other banks at risk of bankruptcy.