JP Morgan Chase jumps into the breach: The major US bank takes over the ailing regional bank First Republic. She got into trouble after the Silicon Valley Bank went bankrupt. Even the bailout of large US financial institutions did not help.
The struggling US bank First Republic is being taken over by the financial group JP Morgan Chase. First, the US deposit insurance FDIC is to become the trustee of the institute. After that, JP Morgan takes over the bank with all deposits and virtually all assets. This was announced by the California financial regulator DFPI. The bank’s 84 branches in eight US states were scheduled to open Monday as branches of JP Morgan Chase.
Over the weekend, the supervisory authorities had tried to find a solution for the future of the ailing institute before the US stock exchanges opened on Monday. “Our government has called on us and others to take action, and we have done so,” said JP Morgan Chase CEO Jamie Dimon.
Mainly wealthy customers with large savings deposits
At the end of last year, the US Federal Reserve ranked the institute 14th among the largest US commercial banks. But the San Francisco-based First Republic has struggled since the collapses of Silicon Valley Bank and Signature Bank in early March. Until then, the industry had envied the First Republic’s business with mostly wealthy customers who rarely defaulted on their loans. The bank made much of its money by lending cheaply to wealthy individuals, which reportedly included Meta CEO Mark Zuckerberg.
But the vast majority of deposits — as with Silicon Valley Bank and Signature Bank — were uninsured because they were above the $250,000 limit set by the FDIC. That worried analysts and investors because the latter might not get all their money back if the First Republic went bankrupt.
Bailout of the big banks – stocks at record lows
These fears were reflected in the bank’s latest quarterly figures. Investors said they withdrew more than $100 billion from the bank during the April crisis. The institution was only able to stop the development because a group of large banks stepped in to bail it out with $30 billion in uninsured deposits.
The First Republic then looked for a way to clean up. The bank wanted to sell unprofitable assets, including the low-interest mortgages it provided to wealthy customers. It also announced that it would lay off up to a quarter of its workforce, which numbered around 7,200 at the end of 2022.
However, investors remained skeptical. Bank executives have not answered questions from investors or analysts since the earnings release, and First Republic stock continued to fall. The bank’s shares were temporarily suspended from trading on Friday.