Following the catastrophic fall of First Republic Bank and its subsequent entry into receivership on Monday, May 1st, banking titan JPMorgan Chase announced that it will be buying most of its assets in order to protect the deposits of existing customers.
According to JPMorgan Chase chief executive Jamie Dimon, the mega-bank acquired most of First Republic’s assets from the Federal Deposit Insurance Corporation (FDIC), along with both insured and uninsured deposits. Dimon explained that the regulatory body invited them and other financial firms to step in, adding that the deal is a good one for his bank’s shareholders as well as its bottom line.
What Happens Now?
The FDIC is set to cover around 80% of the losses incurred on First Republic’s loan portfolio – mostly made up of single-family residential mortgaged and commercial loans – for up to seven years.
JPMorgan Chase, however, will not be assuming any of the fallen bank’s outstanding corporate debt. Instead, the former will receive the sum of $50 billion in financing to finalize the deal. Based on the terms of the agreement, JPMorgan will pay the FDIC $10.6 billion, then return around $25 billion in funds that were deposited with First Republic by other banks back in March.
As this essentially negates a $5 billion deposit made with First Republic, JPMorgan stands to get a one-time gain of $2.6 billion in all from the deal.
Good News All Around
While this agreement between the FDIC and JPMorgan has taken a weight off the minds of First Republic’s depositors, the decision was also praised by the US Treasury Department which has been on heightened alert given how American depositors have lost confidence in the domestic banking sector – a development that stands to have repercussions on the national economy.
In a press statement, Treasury officials lauded the way the First Republic issue was resolved in a manner protecting the interest of depositors and at minimal cost to the country’s Deposit Insurance Fund. They went on to assure the American public that the country’s banking system remains sound and resilient and that their confidence in the safety of their deposits is still well-anchored.
The Treasury’s sentiments on the issue were echoed in a statement released by North Carolina congressman Patrick McHenry who currently heads the House Financial Service Committee, wherein he lauded the FDIC for the quick resolution of the First Republic issue and asked Americans to keep their confidence in the banking industry.