My take: JPMorgan Chase gets even larger with First Republic deal
On Monday, JPMorgan Chase, the largest for-profit employer in Delaware, emerged as the successful bidder in acquiring the assets of failed First Republic Bank.
Those of us outside banking were largely unaware of First Republic, which was based in San Francisco and operated in eight states on the East and West coasts. The bank catered to large depositors and had about $200 billion in assets, making it one of the 20 largest banks, and about 20 times larger than WSFS, the largest bank headquartered in Delaware.
After the recent failures of the Bay Area’s Silicon Valley Bank and New York’s Signature, it was clear that First Republic was in deep trouble. First Republic’s stock price plunged from $171 a share to the $3 mark.
As was the case with Silicon Valley, the bank was squeezed by rising interest rates that reduced the value of its loans and inveatments. And nowadays, runs on bank deposits can happen at warp speed since depositors can use their laptops and mobile devices for withdrawls.
Over the weekend, reports emerged that JPMorgan and PNC, at the invitation of the FDIC were bidding for the assets of First Republic and today we learned that California regulators shut down the bank, paving the way for federal reglulators to move forward with successful bidder Chase.
The Federal Deposit Insurance Corporation and Chase will share the losses on single family residential and commercial loans.
The federal agency described bidding for First Republic assets as a a “highly competitive bidding process and resulted in a transaction consistent with the least-cost requirements of the Federal Deposit Insurance Act.”
Still, the FDIC estimates that the cost to the Deposit Insurance Fund will be about $13 billion. This is on top of estimated costs of $20 billion and $2.5 billion for Silicon Valley and Signature respectively. Banks will pay more money into the fund to make up for the losses.
The First Republic takeover allows JPMorgan Chase to build on its position as the nation’s largest bank. The financial services giant has been adding bank branches in Delaware and other states as other banks close offices. As a “too big to fail” bank, JPMorgan Chase is pretty much barred from buying smaller fry unless the FDIC comes calling.
The First Republic deal also allowed regional banks to breathe a little easier. Despite, most regionals being in good shape, there had been modest losses in deposits.
Shares of Wilmington-based WSFS rose by three percent on Monday in response to the news. PNC shares were down slightly. WSFS shares had traded for as high as $51 earlier in 2023. – Doug Rainey, chief content officer.
