First Republic: JP Morgan to take over major US bank

JP Morgan Chase is set to take over the troubled US bank First Republic in a deal brokered by regulators.

The Federal Deposit Insurance Corporation (FDIC) confirmed in a statement that First Republic Bank had collapsed on Monday.

Investment banking giant JP Morgan will take on all of the deposits and the majority of First Republic’s assets.

First Republic is the third US bank to collapse in recent months, which has prompted fears of wider banking crisis.

The San Francisco-based lender’s shares fell by more than 75% last week after it admitted that customers had withdrawn $100bn (£79.6bn) of deposits in March.

It follows on from the collapse of Silicon Valley Bank (SVB) in March and the demise of another US lender, Signature Bank.

In a scramble to come up with a rescue package for First Republic, US officials were understood to have contacted six banks, according to news agency AFP.

Jamie Dimon, chief executive of JP Morgan Chase said the government had “invited” the banking giant, along with others, to “step up, and we did”.

He added that the acquisition would “modestly benefit” the firm and would be “complementary” to the existing business.

JP Morgan will take on $173bn of loans, about $30bn of securities and $92bn of deposits from First Republic, it said in a statement.

As part of the agreement, the FDIC will share losses on loans with the JP Morgan. It has estimated that its insurance fund would take a hit of about $13bn in the deal.

The failed bank’s 84 offices in eight states will reopen as branches of JPMorgan Chase Bank from Monday after regulators seized control and immediately sold to the Wall Street institution.

A deposit flight from some lenders in recent months has forced the Federal Reserve, the US central bank, to step in with emergency measures to stabilise financial markets.

In March, a group of America’s biggest banks stepped forward to pump $30bn into First Republic in a bid to stabilise the business, but the efforts proved futile.

Founded in 1985, First Republic is a mid-sized US lender, similar to Silicon Valley Bank. For years, it has catered to wealthy clients – whose money was at risk before the deal was announced after a weekend of negotiations.

When Silicon Valley Bank and Signature collapsed, the FDIC said it would guarantee all deposits to prevent a rush of people trying to get their money out, which is known as a run on a bank.

In Europe, banking giant Credit Suisse was bought by rival UBS in March, in a deal orchestrated by Swiss authorities.

As central banks around the world raised interest rates aggressively to dampen the rate of price rises, known as inflation, some lenders have come under pressure.

Increased interest rates have hurt the values of the large portfolios of bonds bought by banks when rates were lower.

But the current situation doesn’t appear to be a repeat of the 2008 financial crisis as there isn’t the same system-wide problem, when banks around the world suddenly found they were exposed to rotten investments in the US housing market.

That led to enormous government bailouts and a global economic recession.