by TYLER DURDEN at zerohedge.com
Heading into the weekend, US regulators were facing a dilemma over the fate of First Republic Bank: either let the insolvent California bank fail and bail-in some (or all) of the $30 billion in uninsured rescue deposits given to the bank by a consortium of banks including JPMorgan, BofA, Goldman and others so as not to appear like the Biden admin is bailing-out big, bad banks again a la 2008, but in the process restarting the bank run panic as an impairment of all bank depositors would reverse Janet Yellen’s vow not to do just that in the aftermath of the SVB collapse, or bail out FRC including all of its depositors, both retail and institutional, insured and uninsured, and spark a fresh political crisis where republicans accuse democrats of rescuing Jamie Dimon and his banker pals.
In the end, early on Monday morning, the US unveiled a hybrid solution – after all other attempts at a private rescue effort failed – one where the FDIC would seize the insolvent First Republic, the 14th largest US bank by assets, making it the second biggest bank failure in US history, and immediately sell the bulk of its assets and all of its deposits to JPMorgan after a sham but “highly competitive bidding process” had taken place over the weekend (one in which virtually nobody wanted to participate as nobody would buy FRC without explicit government backstops, which in the end is precisely what they ended up getting on FRC’s IO and CRE loan portfolio) while keeping FRC’s toxic Interest-only mortgages to Hamptons’ billionaires.
According to the FDIC announcement, JPMorgan would assume all of First Republic’s $92 billion in deposits — insured and uninsured, including the $5 billion in deposits gived by JPM to First Republic on March 16. It is also buying most of the bank’s assets, including about $173 billion in loans and $30 billion in securities.
As part of the agreement, the Federal Deposit Insurance Corp. will share losses with JPMorgan on First Republic’s loans. The agency estimated that its insurance fund would take a hit of $13 billion in the deal. JPMorgan also said it would receive $50 billion in financing from the FDIC.
More importantly, the FDIC and JPMorgan also entered into a “loss-share transaction on single family, residential and commercial loans it purchased of the former First Republic Bank.” As part of this transaction, the FDIC as receiver and JPMorgan will share in the losses and potential recoveries on the loans covered by the loss-share agreement.
The loss-share transaction, the FDIC said, is projected to maximize recoveries on the assets by keeping them in the private sector, and “is also expected to minimize disruptions for loan customers. In addition, JPMorgan Chase Bank, National Association, will assume all Qualified Financial Contracts.”
The second largest US bank failure in history become a fact after the San Francisco-based First Republic lost $100 billion in deposits in a March run following the collapse of fellow Bay Area lender Silicon Valley Bank, a testament to the catastrophic supervision of the Mary Daly-led San Fran Fed, which was more worried about rainbow flags and DEI than making sure banks in its regions were, you know, solvent. It limped along for weeks after a group of America’s biggest banks came to its rescue with a $30 billion deposit. Those deposits will be repaid after the deal closes, JPMorgan said.
And with the collapse of FRC, three of the four largest-ever U.S. bank failures have occurred in the past two months. First Republic, with some $233 billion in assets at the end of the first quarter, ranks just behind the 2008 collapse of Washington Mutual. Rounding out the top four are Silicon Valley Bank and Signature Bank, a New York-based lender that also failed in March.
Meanwhile, just as we said a month ago when we joked that the regional bank crisis is meant to make JPM even bigger and more systematically important than ever, as it pays just 0.01% on its deposits as it remains the only truly “safe” bank for US depositors, in effect collecting a $90 billion annual subsidy courtesy of its TBTF status…