JPMorgan acquired First Republic after it was taken over by the California financial regulator

A view of the First Republic Bank logo at the Park Avenue location in New York City on March 10, 2023.

David de Delgado | Reuters

California’s financial regulator has taken over First Republic, leading to the third failure of a US bank since March, after a last-ditch effort to persuade rival lenders to keep the troubled bank afloat failed.

JPMorgan Chase will assume all deposits, including uninsured deposits, and “all assets” of the bank, according to a statement released early Monday.

The California Department of Financial Protection and Innovation said it had acquired the bank and appointed the Federal Deposit Insurance Corporation as the bank’s custodian. The FDIC has accepted JPMorgan’s bid for the bank’s assets.

Since the sudden collapse of the Silicon Valley bank in March, attention has focused on the First Republic as the weakest link in the US banking system. Like SVB, which caters to the tech startup community, First Republic has also been a niche lender of sorts in California. It focused on serving wealthy coastal Americans, enticing them with low-rate mortgages in return for leaving the cash in the bank.

But that model fell apart in the wake of SVB’s collapse, with First Republic customers withdrawing more than $100 billion in deposits, the bank revealed in its April 24 earnings report. Institutions with a high percentage of uninsured deposits such as SVB and First Republic found themselves at risk because customers feared losing their savings on a bank run.

First Republic shares are down 97% so far this year as of Friday’s close.

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The depletion of deposits has forced First Republic to borrow heavily from Federal Reserve facilities to maintain operations, squeezing the company’s margins because the cost of funding is much higher now. First Republic accounted for 72% of all borrowing from the Fed’s discount window recently, according to BCA Research’s chief strategist Doug Beta.

On April 24, First Republic CEO Michael Roeffler sought to portray a picture of stability after the events of March. He said deposit outflows had slowed in recent weeks. But the stock fell after the company disavowed previous financial guidance and Roffler chose not to respond to questions after an unusually short conference call.

The bank’s advisers hoped to persuade the largest US banks to come to the aid of the First Republic again. One version of the plan circulated recently involved requiring banks to pay above-market rates for bonds on First Republic’s balance sheet, which would enable them to raise capital from other sources.

But in the end, the banks, which banded together in March to inject $30 billion in deposits into the First Republic, couldn’t agree on the bailout and regulators took action, ending the bank’s 38-year tenure.

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