First Republic Bank was seized by the US government, resulting in the complete wipeout of equity holders.
JP Morgan's acquisition of First Republic Bank included a loss-sharing agreement with the FDIC and a $50 billion line of credit, reducing risk in the banking system and stabilizing the industry.
Deep dives
First Republic Bank seized and sold to JP Morgan
First Republic Bank was seized by the US government, resulting in the complete wipeout of equity holders. The FDIC sold off the bank's deposits and most of its assets to JP Morgan Chase for $10.6 billion. This is the fourth US bank failure in recent months and the second largest in US history. President Joe Biden emphasized the importance of greater regulation in the banking sector to ensure the safety and soundness of the banking system.
Similarities between First Republic Bank and Silicon Valley Bank
Investors and customers saw similarities between First Republic Bank and Silicon Valley Bank. Both banks had a similar client base and faced risks related to rising interest rates. First Republic Bank's business model of offering cheap mortgages to wealthy customers left it vulnerable to losses when interest rates increased. The bank faced a run on its deposits, leading to significant withdrawals. Silicon Valley Bank had already failed in March, which further contributed to concerns about First Republic Bank.
JP Morgan's acquisition deal and its implications
JP Morgan acquired $173 billion in loans and approximately $30 billion of securities from First Republic Bank. The FDIC agreed to bear 80% of the credit losses on First Republic's mortgages and commercial loans, reducing the risk for JP Morgan. The deal included a $50 billion line of credit for JP Morgan and a loss-sharing agreement with the FDIC. Selling assets at a lower price, providing financing, and offering attractive regulatory treatment allowed the FDIC to reduce risk in the banking system. The sale did not prevent a sell-off in other regional bank stocks, indicating ongoing concerns about the stability of the banking industry.
Send us a textThe FDIC took possession of First Republic Bank on Monday, resulting in the third failure of an American bank since March.JPMorgan Chase, already the largest U.S. bank by several measures, emerged as the buyer in a weekend auction for First Republic. It will get all of the ailing bank’s deposits and a “substantial majority of assets.”Patrick's Books:Statistics For The Trading Floor: https://amzn.to/3eerLA0Derivatives For The Trading Floor: https://amzn.to/3cjsyPFCorp...
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