JPMorgan Chase & Co. (JPM) will pay $10.6 billion to the Federal Deposit Insurance Corporation (FDIC) to buy First Republic Bank (FRC)—after the latter was seized—and it may be getting a quite a bit more than its money's worth.
- JPMorgan has snapped up the ailing First Republic Bank, with FDIC assistance.
- The Wall Street giant may add 1-2% to its net income with the deal, according to analysts.
- The FDIC will take a $13 billion hit to its fund and provide $50 billion in financing.
A Whole Host of Assets and Big Guarantees
As a part of this deal, JPMorgan will take on all $92 billion of First Republic's $103.9 billion deposits. It will also buy the bulk of the failed bank's assets, which include about $173 billion in loans and $30 billion in securities. The FDIC said on Monday, that as of April 13, First Republic Bank had approximately $229 billion in total assets.
The FDIC has agreed to support the deal, with the agency set to take a $13 billion hit on its insurance fund and provide $50 billion in financing for the deal. JPMorgan will repay $25 billion in deposits from ten large U.S. banks and eliminate $5 billion in its own deposits that were a part of the $30 billion rescue deal engineered to stabilize First Republic in March.
The FDIC, typically, insures deposits up to $250,000 for member banks, and any deposits in excess of that threshold are uninsured. Some regional banks, including First Republic, had a high percentage of uninsured deposits, which worried analysts. In its first-quarter earnings, First Republic said excluding the $30 billion it got from other banks, 27% of all its deposits totaling $19.8 billion were uninsured.
The FDIC will provide loan loss coverage to JPMorgan with 80% coverage for single-family residential mortgages over seven years and 80% coverage for five years on commercial loans, including real estate. Commercial real estate loans were casting some doubts on the financial strength of regional banks as loan defaults began to creep up.
What This Purchase Means For JPMorgan?
Analysis from Bloomberg Intelligence said JPMorgan "may add 1-2% to 2023-24 net income with its purchase of First Republic, excluding a $2.6 billion gain on closing and $2 billion of restructuring costs."
Wedbush analyst David Chiaverini said FRC was the “Diamond of the Season" due to its high net worth client base.” He added that despite being another banking failure, it is likely an “idiosyncratic situation and not lead to bank contagion.”
Correction—May. 1, 2023: A previous version of this article did not clarify that JPMorgan would pay $10.6 billion to FDIC in the headline.