How JPMorgan’s Dimon won the First Republic deal

JPMorgan Chase & Co (JPM.N) backed First Republic Bank to the tune of $10 billion, according to two sources, on March 12 as major U.S. banks struggled in the wake of a confidence crisis.

Even with the JPMorgan facility, depositors nevertheless started leaving the bank in droves. However, this was only the beginning of a chain of events – some of which are reported here for the first time – that would ultimately place JPMorgan and its CEO, Jamie Dimon, at the center of one of the most extraordinary bank rescues in recent U.S. history.

After weeks of unsuccessful rescue attempts and botched conversations with some of the most influential Wall Street CEOs and U.S. authorities, JPMorgan purchased First Republic on Monday in a government auction. Two people familiar with the matter say that negotiations for the deal were very close to completion. One of the sources claims that four bidders, including JPMorgan, advanced to the final round of the auction on Sunday night.

Even though the deadline for final offers had been set for several hours earlier, JPMorgan did not find out it had won until approximately 1.15 a.m. in New York. One of the sources claimed that late that night, as Dimon and the other executives waited for the outcome of their proposal, they assumed they had lost because of the FDIC’s quiet.

Announcing the final agreement at 3:30 in the morning solidified Dimon’s position as a top power broker on Wall Street.

Nonetheless, the deal sparked new concerns about the risks of too-big-to-fail banks, the effectiveness of regulatory oversight of the banking industry, and the Biden administration’s determination to prevent corporations from gaining too much power through deals.

Piper Sandler analysts said JPMorgan benefited more from the purchase than just financially, calling the bank “the go-to industry leader in times of turmoil.”

“Right now, our only real cause for concern is the unknown. They stated, “At a time when ‘too-big-to-fail’ is still a political problem, JPMorgan Chase has managed to make itself an even more powerful participant.

Dimon refuted claims that his bank is becoming too large.

The banker added on a conference call after the deal, “We have capabilities to serve our clients, who can be cities, schools, hospitals, governments; we bank the IMF, the World Bank.” “And if you think the United States shouldn’t have it, please feel free to contact me.”
James “Jim” Herbert, the son of an Ohio community banker, started First Republic in 1985. Merrill Lynch acquired the bank in 2007, just before the global financial meltdown. In 2010, after Bank of America Corp (BAC.N) acquired Merrill Lynch, the company re-entered the public markets.

To entice wealthy customers, First Republic offered them discounted mortgage and loan rates. Its dependence on the wealthy made it more susceptible to risk, as seen by the high proportion of uninsured deposits.

In early March, First Republic became a target as investors and depositors fled Silicon Valley Bank in search of perceived safety at other financial institutions. In the first quarter alone, it lost over $100 billion in capital, forcing it to scramble for new investors.

First Republic announced that it had taken additional steps to access a total of $70 billion in money, including from JPMorgan, by the weekend of March 12, when regulators seized Silicon Valley Bank and Signature Bank and announced a series of emergency measures to shore up trust in the system.

The stock price of First Republic did not stabilize as a result of the reassurance, and it dropped again the next day.

It is unclear when JPMorgan’s involvement with First Republic expanded beyond that of an advisor assisting the bank strengthen its finances, but Reuters was able to establish that it did. It was appealing to JPMorgan because of the potential boost to its private banking business from the lender’s client list of high-net-worth individuals.

However, conventional wisdom at the time held that regulators would not approve of JPMorgan’s purchase of another bank. Federal law prohibits a huge bank like JPMorgan from making an acquisition that would bring it above the 10% threshold of total bank deposits in the country. The rule can be bent to allow acquisitions of failing banks.

According to a person with knowledge of the situation, JPMorgan began an internal process to explore potential outcomes for First Republic, one of which was an acquisition. According to the insider, the deal was given the codename “Forest” internally.