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First Republic: JP Morgan snaps up major US bank First Republic: JP Morgan snaps up major US bank
(about 1 hour 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 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. The Wall Street giant said it would pay $10.6bn (£8.5bn) to the Federal Insurance Deposit Corp (FIDC), after officials shut down the smaller bank.
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 had been under pressure since last month, when the collapse of two other US lenders sparked fears about the state of the banking system.
Authorities said they hoped the deal would resolve any panic. Authorities said they hoped the deal would resolve the panic.
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. The failure of San Francisco-based First Republic is the second-largest in US history and the third in the country since March.
Worth more than $20bn at the beginning of last month, the bank was known for its big home loan business and for its stable of wealthy clients. It was anked as the 14th biggest lender in the US at the end of last year.
The bank's 84 offices in eight states reopened on Monday as branches of JPMorgan Chase Bank after regulators seized control and sold it to the Wall Street institution.
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.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.
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". US President Joe Biden said the actions would ensure that the banking system was "safe and sound".
"This part of the crisis is over," Mr Dimon said, noting that few other banks were at risk of such massive customer flight. But the deal appeared poised to renew political debate about financial regulation and the power of America's biggest banks.
"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, chief executive of JP Morgan Chase, said the government had "invited" the banking giant, along with others, to "step up, and we did" and offered assurances about the industry.
"This part of the crisis is over," he said, noting that few other banks were at risk of the customers withdrawing deposits on mass, which caused the problems at First Republic and the two other lenders: Silicon Valley Bank and Signature Bank.
"Down the road - rates going up, recession, real estate - that's a whole different issue. For now, we should take a deep breath," he added.
Jamie Dimon told reporters on Monday: 'Hopefully this will help stabilize everything.'Jamie Dimon told reporters on Monday: 'Hopefully this will help stabilize everything.'
The failure of San Francisco-based First Republic is the second-largest in US history and the third in the US since March. Fears over the health of the US's banking system first erupted after the collapse of Silicon Valley Bank (SVB) in March. The demise a few days later of another US lender, Signature Bank sparked panic among investors and bank customers.
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. US authorities stepped in to guarantee deposits beyond typical limits at SVB and Signature in an effort to head off further runs on bank deposits.
But as fears struck the industry after the collapse of two other lenders last month, it was seen as vulnerable. But that did not immediately prevent concerns from spreading.
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. 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.
It also had a big book of mortgages, which had been hurt by the sharp rise in interest rates last year. Meanwhile, a group of America's biggest banks, including JP Morgan, pumped $30bn into First Republic in a bid to stabilise the business, which was seen as vulnerable because its assets had been hurt by the rise of interest rates last year and its wealthy customers were likely to transfer funds.
In recent weeks, worried investors have dumped shares. First Republic's disclosure last week that it had lost roughly $100bn in deposits reignited concerns.
Investors, who had already been dumping shares, bolted. The firm's shares - worth more than $120 apiece at the beginning of March - were trading for less than $4 on Friday.
Mr Dimon said the big banks' deposit influx, which will now be repaid, had bought time and allowed regulators to close the firm without having to guarantee all deposits.
Shares in JP Morgan gained 2.6% following the deal, which will see the bank take on $173bn of loans, about $30bn of securities and $92bn of deposits from First Republic.
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.
'Taxpayers will not bear costs'
Mr Biden emphasised that the insurance fund - which gets money from banks - would bear the costs, not taxpayers.
"Shareholders are losing their investments and critically taxpayers are not the ones that are on the hook," he said.
Repeating calls for stronger regulation, the President added: "We have to make sure that we're not back in this position again."
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.
Is this a banking crisis - how worried should I be?Is this a banking crisis - how worried should I be?
Future of US bank in doubt as investors fleeFuture of US bank in doubt as investors flee
US bank makes last ditch bid to find rescuerUS 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.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. The sale to JP Morgan was better than the alternative -a fire sale,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.
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".
"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 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.
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.
But that did not immediately prevent concerns from spreading.
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.
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.
Mr Dimon said the deal had bought time and allowed regulators to close the firm without having to guarantee all deposits.
Those deposits will be repaid as part of the deal.
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.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.
Those moves have hurt the value of debt with lower interest rates.Those moves have hurt the value of debt with lower interest rates.
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. Analysts have said the current issues are distinct from the 2008 financial crisis, when bad loans in the US housing market hit banks around the world, leading to enormous government bailouts and a global economic recession.
That led to enormous government bailouts and a global economic recession. "What's different this go-round, is that it's not credit quality that's bringing these banks down, it's been the interest rate risk," said David Chiaverini, managing director at Wedbush Securities.
He said the most at-risk banks had now fallen but warned banks were "not completely out of the woods", adding others could be hurt as higher borrowing costs slow the economy and unemployment and loan defaults rise.
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