JPMorgan Chase Bank Acquires Another Failed Bank 15 Years After 2008 Banking Crisis

May 3, 2023 Advisory

On May 1, 2023, the Federal Deposit Insurance Corporation (FDIC) announced that First Republic Bank (First Republic) had been closed by the California Department of Financial Protection and Innovation, which appointed the FDIC as receiver. The FDIC also announced that it entered into a purchase and assumption agreement with JPMorgan Chase Bank, National Association (JPMorgan), to assume all of the deposits and substantially all of the assets of First Republic, a decision that was reached Monday in the early morning hours after what was described as a frantic weekend of negotiations. After the FDIC’s announcement, the FDIC prepared to reopen First Republic’s 84 offices in eight states as branches of JPMorgan and provide customers access to all of their deposits.

As of April 13, 2023, First Republic had approximately $229.1 billion in total assets and $103.9 billion in total deposits. A California-chartered commercial bank, First Republic included multiple subsidiaries according to its filed 2021 Form 10-K: First Republic Investment Management, Inc., which focused on wealth management services; First Republic Securities Company, LLC, which provided brokerage services and insurance solutions; First Republic Trust Company of Delaware LLC, which offered trust services; First Republic Trust Company of Wyoming LLC, which also provided trust services; and First Republic Lending Corp.

JPMorgan agreed to pay $10.6 billion to acquire First Republic, and the FDIC estimates that the cost to the FDIC’s Deposit Insurance Fund (DIF) will be about $13 billion as part of the share-loss agreement it entered into with JPMorgan. The DIF is funded by assessments paid by insured banks and thrifts and is not taxpayer-funded. The sale of First Republic was described as a highly competitive bidding process among financial institutions including PNC Financial Services, Fifth Third Bancorp and Citizens Financial Group.

JPMorgan is no stranger to buying troubled banks at a discount. In 2008, at the height of the banking crisis, JPMorgan acquired Bear Stearns Companies, Inc. and Washington Mutual. Fifteen years later, U.S. banks are again suffering. This is the third major U.S. bank failure in 2023, which includes the collapse of Silicon Valley Bank (SVB) and Signature Bank in March. Interestingly, according to Forbes, First Republic’s collapse is now the second-largest bank failure in U.S. history, eclipsing that of SVB, which held assets totaling $209 billion at the time of its collapse. Moreover, The New York Times reports that First Republic, SVB and Signature Bank combined held more in inflation-adjusted assets than the 25 U.S. banks that collapsed in 2008.

On the same day First Republic was seized by California regulators and put into FDIC receivership, the FDIC released a comprehensive overview of the deposit insurance system and options for reform to address financial stability concerns stemming from recent bank failures. Among the proposals by the FDIC is a recommendation to increase the $250,000 deposit insurance cap.

Armstrong Teasdale lawyers are continuing the monitor the evolving situation. Please contact your regular AT lawyer or the author with any questions.

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