Last updated at 4:44 a.m., EST
The regulators finally come to a decision. The Federal Deposit Insurance Corp. (FDIC) and Californian regulators have agreed to sell the majority of First Republic Bank’s assets and all of its $93.5 billion in deposits to JPMorgan Chase (JPM).
Additionally, losses on First Republic’s loans will be shared by both parties. The deal, according to the FDIC, will have a negative impact on its insurance fund of $13 billion. In addition, JPMorgan will receive $50 billion in financing from the FDIC.
FDIC to Decide the Fate of First Republic Soon (last updated at 3:37 a.m. EST)
FDIC is evaluating the final bids submitted by some of the top U.S. banks, including JPMorgan Chase (JPM), PNC Financial (PNC), and Citizens Financial (CFG), in an effort to solve the problems of the troubled lender First Republic Bank (NYSE: FRC). The regulator’s decision is expected to come before Monday’s market opening.
A few bidders have received additional inquiries from the FDIC, and some have been asked to revise their bids. If the regulator is unable to reach a decision, it may seize the bank and assume control.
First Republic has been in distress since the collapse of Silicon Valley Bank and Signature Bank in early March. Concerns were raised that FRC could be the third bank to fail due to its uninsured deposits and low-interest-rate loans to customers.
It is worth highlighting that in its first-quarter results, the company said that its customers had pulled out nearly $100 billion in deposits in March itself. Furthermore, the bank has lost about 97% in value since March to close at $3.51 on April 28.
In response to the bank’s Q1 results, which were resealed on April 24, eight analysts gave the stock a Hold rating, while Citigroup analyst Arren Cyganovich downgraded the stock to a Sell.
According to Cyganovich, First Republic’s cost of borrowing is still high compared to its earnings, and he anticipates the bank will continue to lose money until its balance sheet is appropriately sized.