First Republic Bank to be acquired by JP Morgan Chase & Co, here's what you need to know

First Republic Bank was taken over by regulators and will be acquired by JPMorgan Chase & Co. after rescue efforts failed, reported Reuters.

JPMorgan will “assume all deposits, including all uninsured deposits, and substantially all assets” of First Republic, the California Department of Financial Protection and Innovation said in a statement.

The California regulator appointed the Federal Deposit Insurance Corp. as receiver of the San Francisco-based bank. “Deposits are federally insured by the FDIC subject to applicable limits,” the DFPI said in its statement.

First Republic Bank’s 84 branches in eight states will reopen Monday as branches of JPMorgan Chase Bank.

On Friday, the shares of First Republic Bank plunged to a record low of  before trading was halted amid speculation that a takeover by regulators for the troubled bank.

The San Francisco-based bank gained as much as 6.6% and then collapsed more than 50 per cent amid the rumors.

US officials were in talks to rescue First Republic, with the Federal Deposit Insurance Corp (FDIC), Treasury Department and Federal Reserve reported Reuters.

But some of the biggest US banks, who have already contributed $30 billion in deposits to First Republic, have balked at getting more involved and potentially throwing good money after bad, Bloomberg News reported.

The focus has shifted to a US takeover, according to CNBC.  First Republic has acknowledged it’s engaged in discussions with multiple parties about strategic options.

According to the report, the government's involvement was helping bring more parties, including banks and private equity firms, to the negotiating table, one of the sources for the report had told Reuters.

Still, concerns remained that deposit declines at First Republic could worsen and spark a fresh meltdown in the U.S. banking industry even as it recovers from the collapse of two regional lenders last month.

First Republic earlier this week said its deposits had slumped by more than $100 billion in the first quarter.

How did the crisis unfold?

First Republic Bank’s shares have started falling sharply after the announcement of its Q1 results on Monday. According to reports it showed a decline of around $70 billion in its deposits since 9 March,2023. Its deposits on 9 March, before Silicon Valley Bank (SVB) collapsed, had stood at $173 billion, which declined to $102.7 billion as on April 21. In the first quarter, its deposits saw an outflow of over $100 billion. This raised doubts about the bank’s financial health.

In March, failure of Silicon Valley Bank and then that of Signature Bank incited a run on deposits at First Republic and other regional banks. Around that time, Fitch Ratings and the S&P Global Ratings both downgraded the credit rating of First Republic due to it having a high proportion of uninsured deposits and its having lent out more money than it had in deposits.

First Republic, in need of capital, took out loans from the Federal Reserve and the Federal Home Loan Bank, as well as a line of credit from JPMorgan. Around this time, the bank also received the $30 billion infusion from the 11 big banks.

First Republic had also announced plans to cut as much as a quarter of its workforce and slash executive compensation by an unspecified sum.