What’s happened to First Republic Bank? US bank’s share price, what is FDIC, has JP Morgan taken over?
The bank reignited concerns about a global banking crisis in 2023, following the collapse of Silicon Valley Bank and emergency UBS-Credit Suisse merger in March
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Troubled US lender First Republic Bank has been seized by US government regulators following a dramatic share price collapse.
With its stock tumbling by around 60% in just a matter of days in late April, there had been concerns the mid-sized US bank’s collapse would fuel a global banking crisis. Issues at the business first emerged in March 2023, when similarly sized American financial institution Silicon Valley Bank (SVB) went under.
SVB’s demise, which created issues for the startup sector here in the UK, prompted markets across the globe to question the viability of other major banks. One of the casualties of this chain reaction was already-beleagured Swiss banking giant Credit Suisse, which became the subject of an emergency takeover by its rival UBS.
The latest crisis came after First Republic released its first quarter results on 24 April. The financial institution - which is among the 20 largest banks in the US - revealed more than $100 billion (roughly £80 billion) had been withdrawn from its accounts during March’s banking turmoil. Its share price then plunged as investors failed to be convinced by its turnaround plans.
So, what happened to First Republic - and has it now been taken over by JP Morgan?
What’s happened to First Republic Bank?
Formed in 1985 in San Francisco, California, First Republic Bank is a financial institution that operates solely in the US.
In little more than 35 years, it grew from one of the smallest banks in the country to the 14th biggest. Before the March meltdown in the US banking sector, it held more than $170 billion in deposits (i.e. its customers’ money), with its clientele tending to be wealthy individuals who liked its low-cost loans.
But the value of the deposits it held crashed by $100 billion in just days after SVB and Signature Bank failed. As these banks went out of business, anxious investors looked for weaknesses in the balance sheets of other financial institutions.
The main weakness they discovered at First Republic was that the majority of its deposits were uninsured (i.e. not fully protected by the government). It meant that, if the bank went under, there was little chance its customers would be able to get all of their money back.
In the US, most deposit accounts are insured by up to $250,000 (£200,000). Here in the UK, the Financial Services Compensation Scheme (FSCS) means you can get up to £85,000 back almost immediately if your bank fails, with the Bank of England announcing recently that it’s looking to up this amount further.
Given the high net worth of many of First Republic’s clients, like Meta CEO Mark Zuckerberg, their deposits tended to be above the $250,000 limit. So, they withdrew their funds to places they deemed to be safer bets in a bid to protect themselves.
The bank was also hit by a gap between its assets (i.e. its investments) and liabilities (e.g. deposits) as interest rates increased. When central banks raise their base rate, it devalues bonds (which are often held as investments by banks) and fixed-rate loans, while increasing the payments banks have to make to customers.
Here in the UK, banks are required to have a certain amount of cash spare to cover such an eventuality under rules introduced after the 2008 crisis. But in the US, mid-sized banks like First Republic successfully lobbied former President Donald Trump to abolish such rules for American financial institutions.
First Republic did not immediately fail like SVB and Signature because a group of large banks stepped in to provide it with $30 billion (£24 million) in deposits. But with its first quarter results (published on 24 April) showing the hit it took in the March banking crisis was worse than first feared, investors lost confidence in its ability to turn its fortunes around.
The bank said it planned to rescue itself by selling off assets, restructuring its operations, and laying off up to a quarter of its 7,200-strong workforce. In the background, it was reportedly seeking out a takeover from one of its larger rivals.
But, on Monday (1 May), it was seized by US regulators who sold most of its assets to JP Morgan Chase - the biggest baking brand in the US, which had become First Republic’s main backer in recent weeks. The Federal Deposit Insurance Corporation (FDIC) - the US regulator, which fulfils a similar role to the FSCS here in the UK - said its 84 branches would now operate under the JP Morgan Chase name.
What is First Republic Bank’s share price?
At the beginning of March 2023, First Republic stock was trading in the region of $120 per share. But this price soon plummeted after fears of a banking crisis took hold.
By the end of the month, they were around the $14 dollar mark. After announcing its first quarter results on Monday (24 April) - documents which showed the full extent of the crisis it endured in March - shares plummeted again, falling below $5 at one point on 26 April as investors lost confidence in First Republic’s ability to turn things around.
Despite its stock rallying slightly on 27 April, with shares trading above $6, the bank had still endured a share price crash of more than 95% compared to the previous year. Its prospects of a recovery receded yet further as its shares dipped to a new low of $3.20 on Friday (28 April). It orced the FDIC to work through the weekend of 29/30 April to find a solution ahead of stock markets reopening on Monday (1 May).
Is there a banking crisis 2023?
The markets deemed First Republic to be at risk of failure after SVB and Credit Suisse’s woes. This was reflected in the fact that its share price did not recover in April after the market turmoil had subsided.
So, its stock price collapse and JP Morgan takeover should not be viewed as a sign that a fresh banking crisis is brewing. Indeed, the big banks appear to be seeing business as usual on the markets.
Any spillover to the UK is unlikely. As the University of Stirling’s professor of banking and applied economics Robert Webb told NationalWorld in March, healthy balance sheets at banks and post-2008 reforms of the City of London make a widespread financial crisis on this side of the Atlantic much less likely.
However, he also cautioned that runs on banks can still happen given the speed at which bad news and misinformation can travel around the world. With the global financial system heavily reliant on customer confidence, it means we can never fully rule out a future crisis.