JPMorgan Chase is to acquire most of First Republic after US regulators orchestrated an overnight deal to shut the embattled Californian bank, wiping out its shareholders in the second-biggest bank failure in the country’s history.
The Federal Deposit Insurance Corporation and California regulators, which announced the deal early on Monday morning, said they were simultaneously closing the First Republic and selling off all $93.5bn of its deposits and most of its assets to JPMorgan.
The Wall Street bank is paying the FDIC $10.6bn as part of the deal.
JPMorgan’s chief executive Jamie Dimon defended the administration’s handling of the process, arguing that ultimately nobody had wanted to acquire First Republic as a going concern.
“The whole world knew it was available, and no one bought it,” he said.
The only bigger bank failure in US history was the collapse of Washington Mutual in 2008. While First Republic’s market capitalization was $25bn in February, all its previous shareholders have now been wiped out.
Shares in US regional banks were under pressure after the announcement. Citizens and PNC, which both bid unsuccessfully for First Republic’s assets, were each down around 5% by early afternoon trading, while PacWest was more than 5% lower, trimming earlier losses.
The regulators’ move follows weeks of turmoil in the US banking system after the failure of Silicon Valley Bank in March.
First Republic, which is marginally bigger than SVB, is the third bank to be taken over by the FDIC in less than two months, as rising interest rates have weakened banks that relied on low-cost deposits.
Many midsized banks initially suffered deposit runs and share-price collapses after SVB went bust, although most have stabilized in recent weeks.