First Republic Bank's stock closed at $3.51 on Friday, a fraction of the roughly $170 a share it traded for a year ago. The bank has been struggling since the collapse of Silicon Valley Bank and Signature Bank in early March, as investors and depositors grew increasingly worried that the bank may not survive as an independent entity. The Federal Deposit Insurance Corporation (FDIC) is considering taking over control of the bank and reselling it to the successful bidder. If First Republic were to fail, its depositors might not get all their money back.
Investors have remained skeptical about the bank's prospects, as other options such as government control or continuing to try to survive on its own would see its value continue to disappear. Jamie Dimon, CEO of JPMorgan, says the US government asked his bank to "step up" in order to rescue First Republic after it was seized by FDIC.
The acquisition includes most of First Republic's assets – approximately $92 billion in deposits – causing JPMorgan's stock price jumped by 4.2% during pre-market trading following Monday’s announcement.
Jamie Dimon stated: “The government invited us to step up and we did.” He further explained how this move benefits both parties: “It is accretive for our shareholders; helps advance our wealth strategy; complements our existing franchise.”
With this acquisition, JPMorgan will receive around $173 billion in loans and about $30 million worth securities while recording a post-tax gain of approximately $2.6 billion.
In light of previous experiences with troubled banks during 2008 financial crisis which he called 'expensive lessons,' Mr.Dimon acknowledged that this time they learned from past mistakes avoiding potential legal disputes with FDIC regarding Washington Mutual liabilities.
By acquiring First Republic branches—set open under normal business hours—JPMorgan eliminated the need for the government to decide on extending special protection. The FDIC, in return, provided $50 billion in five-year, fixed-rate financing.
Despite challenges faced during 2008 deals, JPMorgan emerged as one of US's most profitable banks with consistent returns on equity that outpaced its rivals.
Jamie Dimon announced that the crisis leading to three regional U.S. banks' downfall is largely over following First Republic's resolution. After winning a weekend auction for First Republic, it was seized by FDIC and acquired nearly all deposits and assets by New York-based JPMorgan early Monday morning.
Shares of other regional banks like PacWest and Citizens Financial slumped during premarket trading after this announcement.