The US banking regulators made an announcement Monday morning of closing the crisis-hit San Francisco-based bank First Republic and selling off the lender’s majority deposits of $93.5bn to JPMorgan Chase along with most of the assets, reported Financial Times. With this JPMorgan Chase will acquire most of First Republic.
Federal Deposit Insurance Corporation (FDIC) was able to reach a loss-sharing agreement with JPMorgan over the unrealized losses in its loan portfolio resulting from the most recent increase in interest rates. Jumbo mortgage loans given by the bank at comparatively low-interest rates to entice and retain wealthy clients had seen a dramatic decline in value.
All depositors, including those who have more than the $250,000 insurance cap, will be able to access their money when the bank opens today morning thanks to the agreement. The FDIC predicted that its insurance fund would suffer losses of around $13 billion, as per reports.
The American banking crisis started after the failure of Silicon Valley Bank and Signature Bank earlier. First Republic clients panicked and withdrew almost $100 billion in deposits in a few days of the SVB catastrophe.
Since then, the stock has lost around 97% of its value. The largest banks in the country, including JPMorgan and PNC, attempted to support the First Republic bank with a $30 billion deposit, but it was insufficient.
According to The Wall Street Journal, First Republic contemplated a sale or an outside capital infusion and recruited investment bankers to advise on its alternatives.
On Monday, First Republic presented a dreadful quarterly profits report that included fresh information on the severity of the harm caused by the deposit run.
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The bank claimed that costly loans from the Federal Reserve and Federal Home Loan Bank were used to plug the hole left by fleeing depositors. That left the lender facing a future scenario in which it might have to pay more in liabilities than it would have made in assets.
Several large banks, including JPMorgan Chase & Co. and PNC Financial Services Group Inc., were reportedly interested to bid for purchasing First Republic Bank.
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