First Republican Stocks Slide As Their Fate Remains Uncertain

The federal government seized First Republic Bank and sold it to JPMorgan Chase on Monday, ending the lender's six-week free fall and assuring depositors that their money is safe.

Widely considered the riskiest bank since Silicon Valley Bank and Signature Bank went bankrupt in March, First Republic lost $102 billion in deposits in the last quarter (more than half of the $176 billion it held at the end of last year). During that period, banks also borrowed about $92 billion, mostly from government-backed lender groups and the Federal Reserve.

The failure of First Republic Bank has much the same roots as the collapse of Silicon Valley Bank and Signature Bank – frightened depositors and investors withdrew their money and sold their shares in droves.

JPMorgan will “underwrite all deposits and substantially all of First Republic Bank's assets,” the Federal Deposit Insurance Corporation said in a statement, adding that its insurance fund would have to pay approximately $13 billion to cover First Republic's losses.

Here are some answers to questions you may have about what's next for your bank and your money.

In the turmoil sparked by the Silicon Valley Bank collapse, First Republic was initially bailed out by the private sector. In March, he received $30 billion in deposits from 11 of the country's largest banks, including JPMorgan, Morgan Stanley and Wells Fargo.

But the First Republic remained struggling, and conditions had been deteriorating for weeks. It has seen a large outflow of funds as depositors have rushed to withdraw their money and park it in institutions they perceive as safer.

Its shares have taken a hit — they fell 75 percent last week — because investors fear it will fail. The decline came after companies released earnings results saying they had borrowed heavily from the Federal Reserve and a group of government-backed lenders, the financial industry's last lender.

Eventually the FDIC decided it was no longer viable on its own.

The First Republic bank failure was the second largest in US history, following the collapse of Washington Mutual in 2008, and certainly a dramatic turnaround. But what happened to banks this weekend follows the guidelines that have been used before. The government usually arranges for sales of failed banks over the weekend so they can open for business as usual on Monday, said Amanda Heitz, an assistant professor of finance at Tulane University.

“Most failed banks,” he said, “resolved by purchase and assumption agreements,” whereby another institution took over the bank with FDIC support. In this case, the agreement is with JPMorgan.

Although the Silicon Valley Bank collapse was in many ways no ordinary bank failure, depositors did have access to their money on Monday after being confiscated. And the Bank of England was quick to announce that HSBC had bought SVBUK, the bank's UK subsidiary.

In the United States, however, sales take a little longer. Just at the end of March, the FDIC said Silicon Valley Bank had been sold to a North Carolina bank, and until that bank could arrange the sale, the government created what it called a bridge banks to operate it until the sale.

In the event of a bank failure, another bank may have incentives to take over the lender as it wants to expand its footprint in a region or build relationships with new customers.

On Monday, 84 First Republic branches in eight states will reopen as JPMorgan chapters.

But the acquisition makes JPMorgan, already the country's largest bank, even bigger and able to attract political attention.

Over the weekend, federal regulators raced to find a First Republic buyer before markets opened on Monday. JPMorgan, PNC Financial Services and Bank of America are all in talks with the FDIC about a potential deal.

“The FDIC wants banks to take over other banks,” said Ms. Heitz.

One way of incentivizing the buyer is by sharing the potential loss that the buyer may incur, in what is called a joint loss agreement. JPMorgan said the FDIC will award loss-sharing agreements in the First Republic deal including those for some home mortgages and business loans.

Yes. FDIC rules guarantee that deposits of up to $250,000 will be covered, per depositor, per bank. Categories of insurance coverage include checking and savings accounts and certificates of deposit. People who have joint accounts with other people, such as spouses, each get $250,000 in cover, for a potential total of $500,000 in one single joint account.

People with different types of ownership can add it. If the total does not exceed $250,000, multiple holdings — such as a $50,000 savings account and a $20,000 certificate of deposit — will be included. And the insurance is automatic.

Silicon Valley Bank and Signature Bank customers have not lost their deposits. The regulator opted to repay all depositors in full after implementing “systemic risk exclusion”, which is meant to protect against destabilizing the system as a whole.

In the case of First Republic, JPMorgan would cover the lender's deposits, which would eliminate the need for the government to provide a systemic risk exemption.

Stock will written off. When a bank is confiscated by the government, the shareholders are generally wiped out. In this case, First Republic shareholders and their debt holders will not receive anything. JPMorgan Chase said that it would not assume corporate debt or First Republic's preferred stock.

The short answer is: Nothing matters. With the purchase agreement and any assumptions, the acquiring bank takes over all loans on the balance sheet, including mortgages, said Ms. Heitz.

Yes. All First Republic offices reopen on Monday as an offshoot of JP Morgan Chase. They will continue to operate as usual, and from time to time customers will get access to the JP Morgan Chase branch network as well.

Maureen Farrell reporting contribution.