JPMorgan Chase & Co. agreed to acquire First Republic Bank in a government-led deal for the failed lender, putting to rest one of the biggest troubled banks remaining after turmoil engulfed the industry in March.
The transaction, announced in the early morning hours Monday after First Republic was seized by regulators, makes the biggest U.S. bank even larger while minimizing the damage to the Federal Deposit Insurance Corp.’s guarantee fund. JPMorgan agreed to the takeover after private rescue efforts failed to fill a hole on the troubled lender’s balance sheet and customers yanked their deposits. The collapse of First Republic was the second-biggest bank failure in U.S. history.
JPMorgan expects to recognize a one-time gain of $2.6 billion tied to the transaction, according to a statement. The bank will make a $10.6 billion payment to the FDIC and estimated it will incur $2 billion in related restructuring costs over the next 18 months. The FDIC and JPMorgan will share in both the losses and the potential recoveries on the loans, with the agency noting it should “maximize recoveries on the assets by keeping them in the private sector.” The FDIC estimated that the cost to the deposit insurance fund will be about $13 billion.
Marianne Lake and Jennifer Piepszak, co-CEOs of JPMorgan’s consumer and community banking unit, will oversee the acquired First Republic business. First Republic specializes in private banking that caters to wealthier people, much like Silicon Valley Bank, which failed in March, focused on venture capital firms. Chairman Jim Herbert started the lender in 1985 with fewer than 10 people, according to a First Republic history. By July 2020, the bank said it ranked as the 14th-largest in the U.S., with 80 offices in seven states. It employed more than 7,200 people at the end of last year.
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