The Federal Deposit Insurance Company announced early this morning that it had seized First Republic Bank and sold all of its deposits and most of its assets to JPMorgan Chase Bank in a bid to head off further banking turmoil.
First Republic, based in San Francisco with many branches on the Peninsula, is the third midsize bank to fail in two months. It has struggled since the collapse of Silicon Valley Bank and Signature Bank and investors and depositors had grown increasingly worried it might not survive because of its high amount of uninsured deposits and exposure to low interest rate loans.
First Republic Bank’s 84 branches in eight states will reopen this morning during normal business hours as branches of JPMorgan Chase Bank, and customers will have full access to their accounts, the FDIC said.
About two-thirds of First Republic’s accounts had funds exceeding the $250,000 FDIC insurance limits. This morning’s announcement didn’t say whether deposits over the $250,000 would be insured.
About the only thing the FDIC would say is: “Deposits will continue to be insured by the FDIC, and customers do not need to change their banking relationship in order to retain their deposit insurance coverage up to applicable limits.”
However, the FDIC did insure accounts over the $250,000 limit for depositors of Silicon Valley Bank and Signature Bank.
The FDIC worked through the weekend to find a way forward before U.S. stock markets opened.
As of April 13, First Republic had approximately $229 billion in total assets and $104 billion in total deposits, the FDIC said. At the end of last year, the Federal Reserve ranked it 14th in size among U.S. commercial banks.
Before Silicon Valley Bank failed, First Republic had a banking franchise that was the envy of most of the industry. Its clients — mostly the rich and powerful — rarely defaulted on their loans. The bank has made much of its money making low-cost loans to the wealthy, which reportedly included Meta Platforms CEO Mark Zuckerberg.
Flush with deposits from the well-heeled, First Republic saw total assets more than double from $102 billion at the end of 2019’s first quarter, when its full-time workforce was 4,600.
But the vast majority of its deposits, like those in Silicon Valley and Signature Bank, were uninsured — that is, above the $250,000 limit set by the FDIC. And that worried analysts and investors. If First Republic were to fail, its depositors might not get all their money back.
Those fears were crystalized in the bank’s recent quarterly results. The bank said depositors pulled more than $100 billion out of the bank during April’s crisis. San Francisco-based First Republic said that it was only able to stanch the bleeding after a group of large banks stepped in to save it with $30 billion in uninsured deposits.
Since the crisis, First Republic has been looking for a way to quickly turn itself around. The bank planned to sell off unprofitable assets, including the low interest mortgages that it provided to wealthy clients. It also announced plans to lay off up to a quarter of its workforce, which totaled about 7,200 employees in late 2022.
Investors remained skeptical. The bank’s executives have taken no questions from investors or analysts since the bank reported its results, causing First Republic’s stock to sink further.
And it’s hard to profitably restructure a balance sheet when a firm has to sell off assets quickly and has fewer bankers to find opportunities for the bank to invest in. It took years for banks like Citigroup and Bank of America to return to profitability after the global financial crisis 15 years ago, and those banks had the benefit of a government-aided backstop to keep them going. — By the Associated Press
Rich people get bailed out by the government again. Nothing new here.