JPMorgan Chase & Co (JPM.N) said on Monday it will buy most of First Republic Bank's (FRC.N) assets after regulators seized the troubled lender at the weekend, marking the third failure of a major US bank in two months.
Under the deal, which came after an auction, JPMorgan will pay $10.6 billion to the US Federal Deposit Insurance Corp (FDIC) for most of the assets of the San Francisco-based bank, whose failure is the largest since Washington Mutual in 2008.
JPMorgan, already the biggest bank in the United States, has also entered into a loss-share agreement with the FDIC on single family, residential and commercial loans it bought, but will not take First Republic Bank's corporate debt or preferred stock.
The deal allows for an orderly failure of First Republic and avoids regulators having to insure all the bank's deposits, as they had to do when two others collapsed in March.
First Republic disclosed last week that it had suffered more than $100 billion in outflows in the first quarter and was exploring options, increasing stress in the banking sector.
Global banking has been rocked by the closure of Silicon Valley Bank and Signature Bank in March, while Switzerland's Credit Suisse (CSGN.S) had to be rescued by rival UBS (UBSG.S).
First Republic shares tumbled 43.3% in premarket trading on Monday before they were halted. The bank's stock has lost 97% of its value this year. JPMorgan shares rose 2.7%.
"When it was just SVB, it was easy to blame management. However, now that we see the pattern it is evident that the Fed has moved too far, too fast and is breaking things," said Thomas J. Hayes, Chairman and Managing Member, Great Hill Capital.
The US Federal Reserve has been persistently raising its benchmark interest rate since last year, despite calls for a pause after the banking turmoil in March.
Investors have priced in a 90% chance of another 25-basis point rate hike after the central bank's two-day policy meeting on Wednesday, according to CME Group's FedWatch tool.
JPMorgan was one of several interested buyers including PNC Financial Services Group (PNC.N), and Citizens Financial Group Inc (CFG.N), which submitted final bids on Sunday in an auction by US regulators, sources familiar with the matter said.
PNC shares were 2.5% lower in premarket trading.
Reuters