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JP Morgan rescues First Republic for $10.6 billion.

JP Morgan has acquired US bank First Republic, which has been experiencing a turbulent time, in a deal that was brokered by regulators. First Republic was made to close down by officials and sold to JP Morgan Chase for $10.6 billion after being under pressure since the significant collapse of other US lenders last month. The recent failure of First Republic is the second-largest in US history and the third in the country since March 2023. Furthermore, it was worth more than $20 billion at the beginning of last month and was ranked as the 14th largest lender in America at the end of the previous year.

The deal has been executed with the objective to resolve the panic that has been sparked due to the collapse of the other banks. The bank's 84 offices in eight states re-opened on Monday as branches of JP Morgan Chase Bank after regulators seized control and sold it to the Wall Street institution. US President Joe Biden suggested the deal would ensure that the banking system was "safe and sound". However, the deal is likely to ignite a political debate about financial regulation and the power of America's biggest banks.

In addition, Jamie Dimon, chief executive of JP Morgan Chase, outlined that the government had "invited" the banking giant, along with other firms, to "step up, and we did" and offered certainty about the industry. He noted that few other banks were at risk of customers withdrawing deposits at a large scale, which caused the problems at First Republic and the two other lenders: Silicon Valley Bank and Signature Bank.

As a result of the agreement, JP Morgan Chase will take on all $92 billion deposits remaining at First Republic and "substantially all" of its assets, including $173 billion of loans and about $30 billion of securities. The FDIC will share losses on some loans with JP Morgan and provide it with $50 billion in financing. It has estimated that its insurance fund would take a hit of about $13 billion in the deal. The acquisition has bought time and allowed regulators to close the firm without having to guarantee all deposits.

From our perspective it was imperative for this deal to happen during the current banking climate, however it comes with the risks of sparking political debate on the power that US Bank’s hold.

Sources: Financial Times, BBC News, Reuters

Written by: Francesco D’Andrea

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