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First Republic Bank needs a $10.6 billion bailout from JPMorgan Chase

First Republic Bank needs a $10.6 billion bailout from JPMorgan Chase

If he’s still a last-ditch customer, the former US ambassador to Austria, online entrepreneur Trevor Traina, has a new bank. Because First Republic Ban (FR), where Traina used to bank as many other Silicon Valley billionaires, has now been sold in a sale to the world’s largest bank, JPMorgan Chase. Hours earlier, FRB clients were informed: “You and your assets are now secured by JPMorgan Chase’s strong balance sheet and all of your deposits are protected.”

The First Republic, headquartered in San Francisco and therefore at the gateway to Silicon Valley, is the fourth bank in a few months to fail and had to be closed or bailed out. The FDIC, the United States Deposit Insurance Fund, had to close FRb and start an emergency sale at auction. It is the fourth US bank in three months. Here is the sequence of events:

  1. Silvergate Bank | Filtered March 9, 2023
  2. Silicon Valley Bank | Closing 10th March 2023 | Sold to First Citizen Bank on March 27, 2023
  3. Signature Bank | It will close on March 12th
  4. Credit Suisse | bailout on March 16 by borrowing 50 billion Swiss francs (about 50 billion euros) from the Swiss National Bank | Sale to UBS on March 20th
  5. First Republic Bank | Temporary bailout on March 16th with a $30 billion cash infusion from Bank of America, Citigroup, JPMorgan Chase and others | Sale to JPMorgan Chase on May 1, 2023

The FRB bailout was negotiated to the end. Now there’s a deal: JPMorgan Chase will pay $10.6 billion to Federal Deposit Insurance Corp (FDIC), which acquired the failed San Francisco bank, and get most of the bank’s assets. The collapse of the First Republic is the largest since Washington Mutual in 2008. What JPMorgan Chase doesn’t deal with is FRB’s debt and equity.

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It has been apparent for weeks that the FRB is a shaky candidate. Recently it became known that customer confidence has been greatly shaken due to the imbalance. During the month of March, customers withdrew a whopping $100 billion in deposits from the bank — as of the end of the third quarter of 2023, it reportedly had only $104.5 billion in deposits, including $30 billion that 11 major US banks had. . (including Bank of America, Citigroup, and JPMorgan Chase) pushed to support the FRB. The FDIC (the agency always responsible for failing banks) estimates the cost of the Deposit Insurance Fund at about $13 billion.

First Republic Bank: Customers withdrew $100 billion in March

JPMorgan: “This acquisition is of modest benefit”

“Our government asked us and others to get involved, and we did,” said Jamie Dimon, Chairman and CEO of JPMorgan Chase. “Our financial strength, capabilities and business model have enabled us to develop an offer to complete the transaction which reduces the cost of the Deposit Insurance Fund. “This acquisition is of modest benefit to our business overall, as it adds shareholder value, helps enhance our wealth strategy and is complementary to our existing business.”

You can already read there: JPMorgan Chase is doing the US government a favor and saving the next failed bank and, above all, its customers. The major US bank takes deposits totaling about $92 billion, including $30 billion of the aforementioned major bank deposits. In addition, the FDIC will offer loss-sharing agreements on purchased single-family home mortgages and business loans, as well as five-year, $50 billion in fixed-rate financing. The latter is a good feature of the deal, which Dimon describes as “modestly beneficial”.

First Republic Bank: Customers withdrew $100 billion in March

The founder of Instacart was also a customer

FRB customers can breathe easy as they now have access to 4,700 Chase locations across the states and 16,000 ATMs in addition to FRB locations. “You can continue to visit your favorite First Republic Bank branch to conduct financial transactions, and over time you will gain access to JPMorgan Chase’s extensive branch network, the largest in the country,” the letter to customers read.

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JPMorgan Chase now has the opportunity to reach out to wealthy and corporate clients. In addition to Trevor Traina, who is/was even a certification for FRB, there are several MedTechs (such as Dyne Therapeutics and Rocket Pharmaceuticals), venture capital firms, and private equity firms (such as Manna Tree Partners, Sumeru Equity Partners, Fika Ventures, Francisco Partners, Mac Venture Capital) or founders (Instacart’s Apoorva Mehta, Mark Zuckerberg) are FRB clients. They now get a new home in the most valuable bank in the world.

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