Key transaction elements following the FDIC’s competitive bidding process include:

  • Acquisition of the substantial majority of First Republic Bank’s assets, including approximately $173 billion of loans and approximately $30 billion of securities
  • Assumption of approximately $92 billion of deposits, including $30 billion of large bank deposits, which will be repaid post-close or eliminated in consolidation
  • FDIC will provide loss share agreements covering acquired single-family residential mortgage loans and commercial loans, as well as $50 billion of five-year, fixed-rate term financing.
    JP Morgan Chase 5-1-2023 Press Release

JPMorgan Chase acquires substantial majority of assets and assumes certain liabilities of First Republic Bank

Under the deal, the FDIC will cover 80% of any losses incurred on First Republic’s portfolio of single-family residential mortgage loans and commercial loans over the next five to seven years. From CNN reporting

Under terms disclosed by JPMorgan Chase, it will make a $10.6 billion payment to the FDIC, return $25 billion in funds that other banks deposited with First Republic in March in a lifeline negotiated with Treasury at that time, and will eliminate a $5 billion deposit it had made with First Republic.

JPMorgan Chase to buy most First Republic assets after bank fails | CNN Business


Note: the FDIC will cover 80% of future losses. Many office building loans are underwater by perhaps 50%. Obviously, if we have a recession in the next 7 years, a percentage of the single-family homes and other commercial property will be a cost for the FDIC. The US Treasury is a backstop for the FDIC, thus the public could have losses as well. The FDIC anticipates a direct loss now of $13 billion. Not sure if this includes potential future losses. In any event the FDIC would have had to pay back the $30 billion-dollar recent loan to First Republic as the US Treasury negotiated that failed private funding, as it was not large enough. LS

I assume the $50 billion fixed rate loan, from the FDIC is below market rate. Rate not disclosed by JP Morgan or the FDIC. Perhaps a $1 billion a year subsidy? Likely the value of that subsidy allowed JPMorgan to pay a higher price for the bank to the FDIC. Possibly that $10.6 billion offer would have been $2.6 billion otherwise.  I wonder who is buying the assets that JPMorgan chose not to purchase? The Fed? I did not know that the FDIC could make loans. Was this rule bending or rule breaking? LS

Note also that the Treasury cannot extend a loan to the FDIC as the unconstitutional debt ceiling law currently prevents that. Obviously, the FDIC is kicking the loss can down the road so as to prevent it from taking loans now from the US Treasury Department in advance of the looming shutdown. LS

3 of the 4 largest bank failures in US history have been in the last 6 weeks. Perhaps Congress should increase bank regulation and enforcement sooner than later? LS