FDIC estimates a $13 billion loss to deposit insurance fund from First Republic


JPMorgan Chase has won the auction to take over fallen First Republic Bank, the Federal Deposit Insurance Corp. announced early Monday morning.

The deal will see America’s largest bank JPM, +0.87% assume all the deposits and “substantially all the assets” of First Republic FRC, -43.30%, which became the fourth U.S. bank to fail this year.

“Our government invited us and others to step up, and we did,” said Jamie Dimon, chairman and CEO of JPMorgan Chase, in a statement. The FDIC called it a “highly competitive” bidding process.

The deal will see First Republic depositors — which include 11 leading banks that made $30 billion in deposits in a show of confidence — with full access to their deposits. All 84 First Republic offices will reopen as JPMorgan Chase later on Monday, the government said.

As of April 13, First Republic Bank had approximately $229.1 billion in total assets and $103.9 billion in total deposits.

The announcement was made after fears grew over recent weeks that First Republic faced a fate similar to that of Silicon Valley Bank, the tech-centered institution that collapsed following an old-fashioned bank run, after higher interest rates choked off tech-industry dollars and financing and pulled the value on the bank’s bond investments lower. 

Similar to SVB, First Republic sought wealthier clients, who were likelier to have more than the $250,000 insured limit in their accounts. But that approach to doing business stirred more anxiety about what would happen to the bank if a rescue didn’t materialize, and consumers rushed to yank their cash in a flight toward safety or better returns. 

The FDIC will enter a loss-sharing agreement with JPMorgan on single family, residential and commercial loans, in which they’ll share in the losses and potential recoveries on the loans. JPMorgan said the FDIC will provide $50 billion of five-year, fixed-rate term financing.

The FDIC estimates that the cost to the Deposit Insurance Fund will be about $13 billion. 

JPMorgan said it will recognize an upfront, one-time, post-tax gain of approximately $2.6 billion, which does not reflect the approximately $2.0 billion of post-tax restructuring costs anticipated over the next 18 months.

The transaction is expected to be modestly EPS accretive and generate more than $500 million of incremental net income per year, JPMorgan said.

U..S. stock futures ES00, -0.02% NQ00, -0.03% were steady after the deal was announced.

— Bill Peters contributed to this story.

This article was originally published by Marketwatch.com. Read the original article here.

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