JPMorgan's $10.6 Billion 2023 Acquisition of First Republic: What It Gains
In 2023, JPMorgan Chase & Co. acquires First Republic Bank for $10.6 billion with FDIC support, securing valuable assets and strong financial guarantees.
Following the historic second-largest bank failure in U.S. history, the FDIC and JPMorgan Chase & Co. have swiftly intervened.
In a landmark 2023 deal, JPMorgan Chase & Co. will pay $10.6 billion to the Federal Deposit Insurance Corporation (FDIC) to acquire First Republic Bank after its seizure, securing far more than just the purchase price.
Key Highlights
- JPMorgan takes control of the struggling First Republic Bank with FDIC assistance.
- Analysts predict the acquisition could boost JPMorgan's net income by 1-2% during 2023-2024.
- The FDIC will absorb a $13 billion loss and provide $50 billion in financing to support the transaction.
Extensive Assets and Strong Guarantees Included
As part of this strategic acquisition, JPMorgan will assume $92 billion of First Republic’s $103.9 billion in deposits and acquire the majority of its assets, including approximately $173 billion in loans and $30 billion in securities. According to the FDIC, First Republic held around $229 billion in total assets as of April 13, 2023.
The FDIC has committed to backing the deal by taking a $13 billion hit on its insurance fund and extending $50 billion in financing. JPMorgan will repay $25 billion in deposits to ten major U.S. banks and reduce $5 billion in its own deposits linked to a prior $30 billion rescue effort designed to stabilize First Republic in March.
Typically, the FDIC insures deposits up to $250,000 per account, leaving any amounts above uninsured. First Republic had a notably high proportion of uninsured deposits, raising concerns among analysts. In Q1 2023, excluding the $30 billion rescue funds, 27% of First Republic’s deposits, amounting to $19.8 billion, were uninsured.
The FDIC will also provide JPMorgan with loan loss coverage, offering 80% protection on single-family residential mortgages for seven years and on commercial loans, including real estate, for five years. This coverage is crucial as commercial real estate loans have increasingly threatened the stability of regional banks due to rising default rates.
Impact of the Acquisition on JPMorgan
Bloomberg Intelligence reports that JPMorgan’s purchase of First Republic could increase its net income by 1-2% over 2023 and 2024, excluding a $2.6 billion gain upon closing and $2 billion in restructuring expenses.
Wedbush analyst David Chiaverini described First Republic as the “Diamond of the Season” because of its affluent client base. Despite being a banking failure, he views this as an isolated incident unlikely to trigger broader banking sector contagion.
Correction—May 1, 2023: Earlier versions of this article did not specify that JPMorgan’s payment of $10.6 billion is to the FDIC.
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