The United States regulators announced earlier today that First Republic Bank has been seized and sold to JPMorgan Chase. This is the third major U.S. institution to fail in the past two months, causing market nerves over systemic risk. JPMorgan will take on First Republic Bank’s assets, including $92 billion of deposits, but will not assume the troubled lender’s corporate debt or preferred stock.
First Republic Bank’s shares have tumbled 40% in premarket trading and have lost 97% of their value this year. Meanwhile, JPMorgan shares rose 2.4%. The sale to JPMorgan is seen as a positive move to calm market nerves, with the assumption of First Republic Bank’s assets preventing a complete collapse of the bank.
Impact on the Market
The seizure and sale of First Republic Bank has caused a significant impact on the market, with First Republic Bank’s shares dropping by 40% in premarket trading. This is due to the fact that the bank had already lost 97% of its value this year, leading to concerns over systemic risk in the U.S. banking sector.
However, the sale to JPMorgan Chase is seen as a positive move, as it prevents a complete collapse of the bank and reduces the overall risk to the financial system. JPMorgan Chase’s shares, on the other hand, rose 2.4% following the announcement of the sale.
JPMorgan Assumes First Republic Bank’s Assets
JPMorgan Chase will be taking on First Republic Bank’s assets, including $92 billion of deposits. This move will help to mitigate the risk to the financial system, as JPMorgan Chase is a large and stable financial institution that can handle the assets of a smaller bank.
However, JPMorgan Chase will not be assuming the troubled lender’s corporate debt or preferred stock. This means that First Republic Bank’s bondholders and preferred shareholders will likely suffer significant losses.
Third Major U.S. Institution to Fail
First Republic Bank is the third major U.S. institution to fail in the past two months. This has caused market nerves over systemic risk, as investors are concerned that other banks may also be at risk of failing.
The two other major institutions that have failed recently are Lehman Brothers and Bear Stearns. These failures were a major catalyst for the 2008 financial crisis, and investors are concerned that history may be repeating itself.
Conclusion
In conclusion, the seizure and sale of First Republic Bank to JPMorgan Chase is a positive move to calm market nerves over systemic risk in the U.S. banking sector. JPMorgan Chase’s assumption of First Republic Bank’s assets will help to prevent a complete collapse of the bank and reduce the overall risk to the financial system.
However, the failure of three major U.S. institutions in the past two months is a cause for concern, and investors will be watching the situation closely to see if any other banks are at risk of failing.
