JPMorgan Chase (NYSE:JPM) agreed to take over the, as of this weekend, failed First Republic Bank (NYSE:FRC). FRC stock and bondholders will likely be wiped out in the process. The remaining 84 branches are opening as JPMorgan branches today, May 1.
Technically, the country’s biggest bank acquired First Republic’s deposits and “a substantial majority of assets” after regulators took possession. The Federal Deposit Insurance Corporation’s (FDIC) Deposit Insurance Fund will put in $13 billion. That’s less than it cost to wind up Silicon Valley Bank, but it’s still money other bank customers will have to make up.
JPMorgan Chase stock rose 4% on the news in the pre-market. It was expected to open around $144 per share, a market capitalization of $405 billion.
FRC Stock: Is This the End of It?
Speculation of First Republic failing began as Silicon Valley Bank went under in March. Shares worth $138 in early February quickly became worthless, with our Samuel O’Brient warning investors away last week.
The bank’s quarterly report, showing a loss of $100 billion in deposits despite a $30 billion inflow from a consortium of big banks, proved the last straw. What had been the country’s 14th largest bank at the end of 2022 had $229 billion in assets against just $104 billion in deposits when it was closed. All those deposits, however, will be protected.
There is fear of Big Banks acquiring the whole sector. The decision to have JPMorgan, the largest bank in the country, buy First Republic flies in the face of that. The First Republic Bank’s failure is the second-largest in U.S. history, after Washington Mutual’s failure in 2008. That bank was also bought by JPMorgan Chase.
What Happens Now?
The government hopes the sale of First Republic ends the crisis that began at Silicon Valley Bank. Analysts will want to watch the stock of Western Alliance Bancorp (NYSE:WAL), which was also hit hard by withdrawals during the SVB crisis. Its value was cut in half by the crisis, but the stock was little changed over the weekend and now offers a dividend yielding 3.88%.
On the date of publication, Dana Blankenhorn held no positions in any company mentioned in this story. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
