JPMorgan buys First Republic Bank after being seized by regulators

The purchase increases the size of JPMorgan, the biggest bank in the country, which is a result that government officials have previously worked hard to prevent. Because of US regulatory limitations, JPMorgan would normally be unable to increase the size of its deposit base due to its size and current share of the US deposit base. Additionally, the Biden administration and well-known Democratic lawmakers have resented consolidation in the financial sector and other industries.

JPMorgan played a significant role in First Republic's difficulties. The bank provided advice to its smaller competitor in its search for strategic alternatives, and Chief Executive Officer Jamie Dimon played a crucial role in organising bank executives to deposit $30 billion into First Republic to stabilise its finances in the face of high withdrawal rates in March.

Like Silicon Valley Bank, which failed in March and catered to venture capital firms, First Republic specialises in private banking for affluent clients. According to a First Republic history, the lender's chairman Jim Herbert founded it in 1985 with less than 10 employees. The bank predicted that it will be the 14th-largest in the US by July 2020, with 80 locations spread across seven states. At the end of the previous year, it employed over 7,200 people.

First Republic, like other regional lenders, experienced pressure as a result of the Federal Reserve raising interest rates to combat inflation, which reduced the value of the bonds and loans the bank had purchased when rates were low. Depositors left in the meantime, initially in search of higher profits and later out of terror as news of First Republic's condition spread.

As a result, there was a significant hole that was large enough to discourage a full-scale rescuer from intervening. The bank's first-quarter report and news of its attempt to sell assets and organise a rescue in April sparked a new wave of anxiety. The bank announced it will eliminate up to 25 percent of its workforce, reduce the amount of loans still outstanding, and cut back on unimportant activities.

Eleven US banks had tried to keep First Republic afloat by pledging $30 billion of fresh deposits on March 16, with JPMorgan, Bank of America Corp., Citigroup Inc. and Wells Fargo & Co. pitching in $5 billion each. Goldman Sachs Group Inc. and Morgan Stanley and other banks offered smaller amounts as part of a plan devised along with US regulators. On top of that, First Republic tapped the Federal Home Loan Bank Board and a Federal Reserve liquidity line.

It wasn’t enough. The stock, which topped $170 in March 2022, sank below $5 by late April. First Republic’s demise would imperil not only common share owners, but also about $3.6 billion of preferred shares and $800 million of unsecured notes.

The bank has been bought and sold several times over the years, with Merrill Lynch & Co. paying $1.8 billion to acquire First Republic in 2007. Ownership passed to Bank of America when it bought Merrill Lynch in 2009, and changed hands again in mid-2010 when investment firms including General Atlantic and Colony Capital purchased First Republic for $1.86 billion and then took it public.