JP Morgan buys First Republic assets in US auction

Finance


(Reuters) – JPMorgan Chase (JPM.N) said on Monday it will buy most of the assets of First Republic Bank (FRC.N) after regulators seized troubled banks over the weekend Announced. Bank in 2 months.

Under the deal, which took place after the auction, JP Morgan gave the U.S. Federal Deposit Insurance Corporation (FDIC) 106% of the assets of most of the San Francisco-based bank’s largest bankruptcy since Washington Mutual in 2008. You will pay billions of dollars.

Already the largest U.S. bank, JP Morgan has signed a loss-sharing agreement with the FDIC on purchased single-family, residential, and commercial loans, but will not acquire First Republic Bank bonds or preferred stock.

The deal would allow for an orderly bankruptcy of the First Republic, removing the need for regulators to insure all bank deposits, as they had to do when two other banks failed in March. .

Last week, First Republic suffered more than $100 billion in outflows in the first quarter, adding to stress in the banking sector by revealing it was exploring options.

Switzerland’s Credit Suisse (CSGN.S) had to be bailed out by rival UBS (UBSG.S), but the shutdown of Silicon Valley Bank and Signature Bank in March hurt global banking. was shaken.

First Republic shares plunged 43.3% in pre-market trading on Monday, halting trading. The bank’s stock has lost 97% of its value this year. JP Morgan shares rose 2.7%.

“When it was just the SVB, it was easy to blame management, but the patterns make it clear that the Fed is moving too fast and breaking things,” said Chairman Thomas J. Hayes. cum managing member, Great Hill Capital.

The US Federal Reserve (Fed) has continued to raise benchmark interest rates since last year, despite calls for a moratorium after the March bank ruckus.

Investors are pricing in a 90% chance of another 25 basis point rate hike after the central bank’s two-day policy meeting, according to CME Group’s FedWatch tool.

JP Morgan, one of several buyers including PNC Financial Services Group (PNC.N) and Citizens Financial Group (CFG.N), submitted final bids for an auction by U.S. regulators on Sunday. said a source familiar with the matter.

PNC shares fell 2.5% in pre-market trading.

Step up

A security guard stands outside a First Republic Bank branch in San Francisco, California, USA, April 28, 2023. REUTERS/Loren Elliott

The California Department of Financial Protection and Innovation said it owns First Republic and the FDIC will act as its recipient.

In a statement, the FDIC estimated the cost of the Deposit Insurance Fund (DIF) to be about $13 billion. The final cost will be known when the FDIC terminates the receivership.

The US Treasury Department welcomed the resolution, saying it was done at “minimum cost” for the DIF.

JP Morgan said it would take all of the bank’s deposits and pay back $25 billion of the $30 billion it deposited with First Republic in March. New York-based JP Morgan will underwrite $173 billion in loans, $30 billion in securities and $92 billion in deposits.

The acquired business will be overseen by Marianne Lake and Jennifer Piepzak, co-CEOs of JP Morgan’s Consumer and Community Banking (CCB), the company said in a statement.

The relief comes less than two months after the flight of deposits from US lenders forced the Fed to take emergency steps to stabilize markets. These failures came after the voluntary liquidation of the crypto-focused Silvergate.

Jamie Dimon, Chairman and CEO of JP Morgan, said:

“Our financial strength, capabilities and business model have allowed us to develop a bid to execute the transaction in a manner that minimizes costs to the deposit insurance fund.”

JPMorgan expects to achieve a one-time after-tax profit of about $2.6 billion post-acquisition as it does not reflect the potential for an estimated $2 billion after-tax restructuring charges over the next 18 months. said.

The bank said it would be “very well capitalized” with a Common Equity Tier 1 (CET1) ratio consistent with its Q1 2024 target of 13.5% and maintain a healthy liquidity buffer.

The failed bank’s 84 offices in eight states will reopen as branches of JPMorgan Chase Bank from Monday, he added.

Since 2021, JP Morgan has been acquiring more than 30 companies in deals totaling more than $5 billion.

US regulators have lagged behind approving large banking deals in recent years, and the Biden administration has also cracked down on anti-competitive practices.

Reporting by Saeed Azhar, Nupur Anand, and Tatiana Bautzer of New York. Edited by Stephen Coates and Kirsten Donovan

Our standards: Thomson Reuters Trust Principles.

Scott Murdoch

thomson Reuters

Scott Murdoch has worked as a journalist for Thomson Reuters and News Corp in Australia for over 20 years. He has specialized in financial journalism for most of his career, covering equity and fixed income capital markets in Asia and his M&A in Australia. He is based in Sydney.



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