It appears that Friday’s rumors of the Federal Deposit Insurance Corporation (FDIC) putting First Republic Bank (FRC) into receivership were true. Over the weekend, regulators pulled together bids from several of the country’s leading banks, with JPMorgan Chase coming out on top. 💪
Retail investors are used to “Diamond Hands,” but “Dimon Hands” seem much more appropriate for this story. JPMorgan Chase will definitely be HODLing the failing bank’s assets, but not without some sweet government incentives. 💰
Let’s see how the U.S.’s second-largest bank failure (and third since March) panned out for America’s largest bank. 👇
First off, there were several bidders for the regional bank’s assets, including PNC Financial Services, Bank of America, and others. They were given the weekend to review FRC’s records and place bids as the FDIC auctioned off the failed bank. By the end of the weekend, several had dropped out and left JPMorgan Chase with a winning bid of $10.6 billion. 🗳️
The company’s press release outlined these critical elements of the deal:
- JPMorgan will acquire a substantial majority of First Republic Bank’s assets ($173 billion loans, $30 billion securities)
- JPMorgan will assume $92 billion of deposits (includes $30 billion of large bank deposits to be repaid post-close)
- FDIC will provide $50 billion five-year, fixed-rate term financing
- FDIC will provide loss share agreements covering acquired single-family residential mortgage loans and commercial loans
- JPMorgan will not assume First Republic’s corporate debt or preferred stock
First Republic branches normally opened today, and clients will continue receiving uninterrupted service. The deal helped protect insured and uninsured deposits at the bank, helping quell some of the market’s fears about the banking system. Longer-term, FRC’s 84 offices will reopen as branches of JPMorgan Chase. 🏦
From a qualitative perspective, the acquisition will strengthen JPMorgan’s position in the wealth management space. It also broadened its deposit base and its foothold in lucrative coastal markets.
Quantitatively, the company expects to:
- Recognize an upfront post-tax gain of approximately $2.6 billion (excluding $2 billion of post-tax restructuring costs)
- Remain very well-capitalized with a CET1 ratio consistent with its Q1 2024 target of 13.5% and healthy liquidity buffers
- Achieve modest EPS gains, generating more than $500 million of incremental net income per year
JPMorgan CEO Jamie Dimon had this to say, “Our government invited us and others to step up, and we did.” And step up, they did. But they certainly made out well, as the FDIC is expected to lose $13 billion on the deal. 😬
Additionally, he noted, “This acquisition modestly benefits our company overall, it is accretive to shareholders, it helps further advance our wealth strategy, and it is complementary to our existing franchise.”
While Dimon says the immediate danger of this crisis is over, someone forgot to tell regional bank stocks.
The ETF that tracks the industry, $KRE, was down nearly 3% and nearing a fresh low. As for its components, only eight were positive, and 135 were negative today. Investors were focused on names like $PACW, $VLY, $MCB, $HMST, and others who were hit hardest. 👀
