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First Republic: JP Morgan snaps up major US bank First Republic: JP Morgan snaps up major US bank
(about 2 hours later)
JP Morgan Chase has taken over the troubled US bank First Republic in a deal brokered by regulators.JP Morgan Chase has taken 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. The Wall Street giant said it would pay $10.6bn (£8.5bn) to the Federal Insurance Deposit Corp (FIDC), after regulators shut down the smaller bank.
Investment banking giant JP Morgan will take on all of the deposits and the majority of First Republic's assets. First Republic had been under pressure since last month, when the collapse of two other US lenders sparked fears about the state of the industry.
First Republic is the third US bank to fail in recent months, which has prompted fears of wider banking crisis. Authorities said they hoped the deal would resolve any panic.
The San Francisco-based lender's shares fell by more than 75% last week after it admitted that customers had withdrawn $100bn (£79.6bn) of deposits in March. The 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.
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, US officials were understood to have contacted six banks before landing on America's largest lender, according to news agency AFP.
Is this a banking crisis - how worried should I be?
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.
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.
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".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".
'A deep breath' "This part of the crisis is over," Mr Dimon said, noting that few other banks were at risk of such massive customer flight.
The firm will pay $10.6bn to the FDIC for the bank - which had commanded a market value of more than $20bn at the start of the year. "Down the road - rates going up, recession, real estate - that's a whole different issue. For now, we should take a deep breath."
Mr Dimon said he expected the deal marked the end of the panic that emerged last month, noting that few other banks were at risk of the massive customer flight seen at First Republic, SVB and Signature.
"This part of the crisis is over," he said. "Down the road - rates going up, recession, real estate - that's a whole different issue. For now, we should take a deep breath."
Jamie Dimon told reporters on Monday: 'Hopefully this will help stabilize everything.'Jamie Dimon told reporters on Monday: 'Hopefully this will help stabilize everything.'
Founded in 1985, First Republic was a mid-sized US lender, similar to Silicon Valley Bank. The failure of San Francisco-based First Republic is the second-largest in US history and the third in the US since March.
It was known for catering to wealthy clients - many of whom had more money in their accounts than the $250,000 guaranteed by the government if the bank collapsed and withdrew funds amid last month's panic. Worth more than $20bn at the beginning of March, the bank was known for catering to wealthy clients and was ranked as the 14th biggest in the US at the end of last year.
Executives said they expected the acquisition would "modestly benefit" JP Morgan. They said they hoped they would be able to keep the First Republic's customers, boosting their wealth management business. But as fears struck the industry after the collapse of two other lenders last month, it was seen as vulnerable.
It had an unusually high share of customer accounts holding more than the $250,000 guaranteed by the US government, which were at risk of leaving.
It also had a big book of mortgages, which had been hurt by the sharp rise in interest rates last year.
In recent weeks, worried investors have dumped shares.
Is this a banking crisis - how worried should I be?
Future of US bank in doubt as investors flee
US bank makes last ditch bid to find rescuer
The sell-off accelerated last week after the firm admitted that customers had withdrawn roughly $100bn of deposits during the panic in March, more than anticipated.
Betsey Stevenson, professor of economics at the University of Michigan, said First Republic did not have "systemic problems" but failed because customers panicked.
The sale to JP Morgan was better than the alternative, she added.
"It's just not a good idea for a bank to have to liquidate everything over a weekend in order to meet the demands of their depositors," she said.
JP Morgan will take on $173bn of loans, about $30bn of securities and $92bn of deposits from First Republic, it said in a statement.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 some loans with the JP Morgan. It has estimated that its insurance fund would take a hit of about $13bn in the deal. It said it hoped to retain First Republic customers and boost its wealth management business.
Shares in JP Morgan gained 2.6% following the deal.
As part of the agreement, the FDIC will share losses on some loans with the JP Morgan and provide it with $50bn in financing. It has estimated that its insurance fund would take a hit of about $13bn in the deal.
'Banking system sound and resilient'
A spokesperson for the US Treasury Department said it was "encouraged" that the deal was carried out in a way "that protected all depositors".A spokesperson for the US Treasury Department said it was "encouraged" that the deal was carried out in a way "that protected all depositors".
"The banking system remains sound and resilient, and Americans should feel confident in the safety of their deposits and the ability of the banking system to fulfil its essential function of providing credit to businesses and families," the spokesperson added."The banking system remains sound and resilient, and Americans should feel confident in the safety of their deposits and the ability of the banking system to fulfil its essential function of providing credit to businesses and families," the spokesperson added.
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. The failure of First Republic follows the collapse of Silicon Valley Bank (SVB) in March and the demise a few days later of another US lender, Signature Bank.
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. Following the collapse of SVB and Signature, US authorities stepped in to guarantee deposits beyond typical limits in an effort to head off further runs on bank deposits.
In March, a group of America's biggest banks, including JP Morgan, stepped forward to pump $30bn into First Republic in a bid to stabilise the business, but the efforts proved futile. But that did not immediately prevent concerns from spreading.
Mr Dimon said that deal had bought time, allowing regulators to avoid having to guarantee all the deposits of First Republic's customers as well. In Europe, Swiss officials were forced to broker a rescue for troubled banking giant Credit Suisse, which saw 61.2bn Swiss francs ($69bn; £55.2bn) leave the bank in the first three months of the year.
US bank makes last ditch bid to find rescuer In March, a group of America's biggest banks, including JPMorgan, stepped forward to pump $30bn into First Republic in a bid to stabilise the business, but the efforts proved futile.
Future of US bank in doubt as investors flee Mr Dimon said the deal had bought time and allowed regulators to close the firm without having to guarantee all deposits.
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. Those deposits will be repaid as part of the deal.
Increased interest rates have hurt the values of the large portfolios of bonds bought by banks when rates were lower. The turmoil in the banking sector is seen as part of the fallout after central banks around the world, including the US, raised interest rates sharply last year.
In Europe, banking giant Credit Suisse was bought by rival UBS in March, in a deal orchestrated by Swiss authorities. Those moves have hurt the value of debt with lower interest rates.
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. But analysts have said 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.That led to enormous government bailouts and a global economic recession.
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