JPMorgan wins the US-monitored auction auction of the First Republic

May 1 (Reuters) – Jamie Dimon’s JPMorgan Chase & Co (JPM.N) has emerged as the winner of the weekend auction for First Republic Bank (FRCN), in a deal meant to draw a line in the shadow of the latest banking crisis. But it comes at the cost of making America’s largest bank even bigger.

JPMorgan will pay $10.6 billion to the US Federal Deposit Insurance Corporation (FDIC) as part of a deal that will see control of most of the San Francisco-based bank’s assets. The bank will be able to reach First Republic’s desired customer base of wealthy individuals.

The FDIC’s Deposit Insurance Fund will cost about $13 billion, according to the regulator’s preliminary estimate.

California regulators also seized First Republic and placed it in FDIC receivership along with the sale of its assets, marking the third failure for a major US bank in two months and the biggest since Washington Mutual in the 2008 financial crisis.

First Republic was one of the biggest victims of the banking crisis that erupted in March, when depositors fled en masse from some US lenders to institutions like JPMorgan that they thought were safer.

Analysts and industry executives said the deal — which was concluded over the weekend after the FDIC ran an auction process that saw several other banks bid — should calm markets. But, they added, it came at a cost: Big banks were getting stronger while it was harder for smaller banks to do business.

Dennis Keeler, president and CEO of Wall Street reform group Better Markets, said the auction results showed “unhealthy consolidation, unfair competition, and a dangerous increase in banks too big to fail — all while hurting community banks, lending to small businesses.” and economic growth.”

“Regulators need a much better game plan to solve these risky banks when they get into trouble,” Kelleher said.

Shares of JPMorgan and some other major US banks rose on Monday, while many of the next category stocks fell. Wedbush analysts said First Republic shareholders would be eliminated in the deal. Shares of the bank plunged 43.3 percent in pre-market trading on Monday, before it was suspended.

JPMorgan already holds more than 10% of all bank deposits in the country. Wells Fargo analyst Mike Mayo wrote in a research note that JPM’s net deposits will increase 3% as a result of the deal.

JPMorgan has also entered into a loss-sharing agreement with the FDIC for the family, home and business loans it has purchased, but will not take on the company’s debt or First Republic Bank’s preferred stock.

“Our government and others called on us to step up, and we did,” said Jamie Dimon, chairman and chief executive officer of JPMorgan, which was a major player in the 2008 financial crisis, buying Bear Stearns in a weekend bailout.

Rising prices

Global banking was affected by the March closures of Silicon Valley Bank and Signature Bank, as flight of deposits from US lenders forced the Federal Reserve to intervene with emergency measures to stabilize markets, while Credit Suisse of Switzerland (CSGN.S) had to be bailed out by UBS competitor (UBSG.S). These failures came after cryptocurrency-focused Silvergate was voluntarily liquidated.

First Republic revealed last week that it had suffered more than $100 billion in outflows in the first quarter and was exploring options, adding to pressure in the banking sector.

Some blamed the root cause of the crisis in the banking sector on monetary policy, which was very loose for many years but which the US Federal Reserve abruptly reversed over the past year.

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

said Thomas J. Hayes, Chairman and Managing Director, Great Hill Capital.

hot competition

Sources familiar with the matter said JPMorgan was one of several interested buyers including financial services group BNC and Citizens Financial Group Inc, which submitted final bids on Sunday in an auction by US regulators.

Jefferies analysts said JPMorgan’s size may have played in its favor, because it could make the deal’s calculations work better than other bidders.

JPMorgan said it assumed all of the bank’s deposits, and would repay $25 billion of the $30 billion large banks deposited with the First Republic in March.

JPMorgan said it expects to make a one-time after-tax gain of about $2.6 billion after the deal. It also estimated $2 billion in after-tax restructuring costs likely over the next 18 months.

It added that the bank’s 84 failed offices in eight states would reopen as branches of JPMorgan Chase Bank starting Monday.

(Cover) By Saeed Azhar, Nupur Anand, and Tatiana Pautzer in New York. Editing by Stephen Coates and Kirsten Donovan

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