The purchase of First Republic will hopefully calm turmoil in the banking sector, JP Morgan Chase CEO Jamie Dimon said today after an overnight announcement that his firm had bought the failed mid-sized lender.
"Hopefully this will help stabilise everything," Mr Dimon said on a call with reporters before the US stock market opened.
First Republic Bank is the third major US institution to fail in two months.
JP Morgan Chase & Co will take $173bn of loans and about $30bn of securities from First Republic Bank, and $92bn of deposits, JP Morgan said in a statement. It is not assuming the bank's corporate debt or preferred stock.
First Republic Bank shares tumbled 36% in pre-market trading. The stock has lost 97% of its value this year. JP Morgan shares rose 2.6% while S&P 500 futures were trading flat.
JP Morgan was one of several interested buyers including PNC Financial Services Group, and Citizens Financial Group Inc, which submitted final bids yesterday in an auction being run by US regulators, sources familiar with the matter said over the weekend.
The California Department of Financial Protection and Innovation announced early today it had taken possession of First Republic and the Federal Deposit Insurance Corporation (FDIC) would act as its receiver.
The FDIC estimated in a statement that the cost to the Deposit Insurance Fund would be about $13bn. The final cost will be determined when the FDIC terminates the receivership.
The rescue comes less than two months after Silicon Valley Bank and Signature Bank failed amid a deposit flight from US lenders, forcing the Federal Reserve to step in with emergency measures to stabilise markets.
Those failures came after crypto-focused Silvergate voluntarily liquidated.
"Our government invited us and others to step up, and we did," said Mr Dimon.
"Our financial strength, capabilities and business model allowed us to develop a bid to execute the transaction in a way to minimise costs to the Deposit Insurance Fund."
JP Morgan said it expected to achieve a one-time, post-tax gain of approximately $2.6bn after the deal which did not reflect an estimated $2bn dollars of post-tax restructuring costs likely over the next 18 months.
It said the bank would be "very well-capitalised" after with a common equity tier one (CET1) ratio consistent with its first quarter 2024 target of 13.5%, and maintain healthy liquidity buffers.
The failed bank's 84 offices in eight states will reopen as branches of JP Morgan Chase Bank from today, according to the JP Morgan statement.
JP Morgan has been on an acquisition spree since 2021, acquiring more than 30 companies in deals worth more than $5bn combined.
In recent years, US regulators have been slow to approve large bank deals. The Biden administration has also cracked down on anti-competitive practices.
