JPMorgan set to buy First Republic, assume commercial real estate assets and loan book

JPMorgan is set to acquire First Republic Bank, seized early Monday by the Federal Deposit Investment Corporation, in a $10.6 billion transaction that will include the purchase of the failed bank’s commercial real estate loans and assets.

The FDIC closed the bank on May 1 and arranged its sale to JPMorgan, a move that came after weeks of sustained share price volatility and withdrawal activity in the wake of the failures of a trio of US banks in early March.

The New York-based bank will assume all $103.9 billion of First Republic’s deposits and substantially all of the San Francisco-based bank’s $229.1 billion in assets. The May 1 deal makes First Republic the second-largest bank by assets to fail in the US, surpassing the failures of Silicon Valley Bank and Signature Bank in March.

A JPMorgan spokesperson confirmed to sister publication Real Estate Capital USA that the deal included First Republic’s commercial real estate assets and loan book. The combined commercial real estate loan book of both banks will total approximately $141.5 billion, per each bank’s first quarter earnings reports.

First Republic’s loans totaled $172.9 billion as of April 13, data from the FDIC showed. Commercial real estate and multifamily loans accounted for 19 percent, or about $32.9 billion, of the total loan portfolio.

The San Francisco-based bank originated $73.4 billion of loan volume in 2022 according to its most recent Form 10-K, inclusive of its commercial, multifamily and single-family loans during the year.

JPMorgan chief executive and chair Jamie Dimon told analysts on a May 1 call that he believes the banking system to now be stable following the First Republic acquisition. Noting no crystal ball is perfect, he agreed with analysts that the deal could be the signpost that acute liquidity issues first suffered in March are mostly behind the industry now.

“There may be another small one, but this pretty much resolves them all,” Dimon said, adding this part of the crisis is over. He noted if rates go up and a recession takes place it will be a whole different issue. “But for now, we should just take a deep breath.”

As part of the deal, the FDIC and JPMorgan have a loss-share transaction agreement in place on the commercial, residential and single family loans purchased from First Republic. Commercial real estate loans will be provided an 80 percent loss coverage for five years.

This means the two will share in any losses or recoveries on the loans covered by the loss-share provision. Its inclusion is a measure to try and minimize disruptions for borrowers and any associated financiers on the loan book.

The FDIC is paying out an estimated $13 billion through its insurance fund to cover First Republic’s losses. The San Francisco bank started tumbling alongside SVB and Signature in March and received more direct intervention from the Federal Reserve, JPMorgan and other US banks.

Protective measures for First Republic included a $70 billion unused liquidity provision from the Federal Reserve and JPMorgan, a lending facility to put a backstop on withdrawals and a $30 billion joint rescue plan featuring 11 US banks. PNC Bank and Bank of America – which were both reported to be in the running to buy First Republic – also contributed to the 11-bank deal.

JPMorgan will return $25 billion of deposits to each bank involved on the March 16 joint rescue plan excluding the New York bank’s own $5 billion deposit. The FDIC is providing JPMorgan a new $50 billion five-year, fixed-rate financing in place of the original joint contributions.

With its purchase of First Republic, JPMorgan is now responsible for the subsequent takeovers for the two largest bank failures by assets in US history. The New York bank previously took over Washington Mutual and its $307 billion in assets in 2008 during the global financial crisis.

JPMorgan will be dropping the First Republic branding as part of the purchase and picking up 84 branches across eight states.

While First Republic’s loan portfolio has a new home at JPMorgan, Signature Bank’s commercial real estate loan book is still up for sale with Newmark in charge of marketing the portfolio. Signature’s commercial real estate loans totaled $33.1 billion at the end of 2022 and were concentrated in multifamily assets, commercial assets and loans linked to acquisition, construction and development financing.