jpmorgan now holds the distinction of having acquired the first and second largest failed banks in us history from the fdic the fdic took over both banks before jpmorgan bought them the fdic seized the largest 309 billion assets subprime mortgage lender washington mutual wamu in september 2008 before jpmorgan bought it for 19 billion according to the washington post on may 1 jpmorgan took san franciscobased first republic 229 billion in assets which catered to wealthy people off the fdic’s hands while taking a multibillion accounting gain since peaking at 219 in early november 2021 first republic’s stock has lost most of its stock market value trading at about 235 in may 1 premarket trade ceo jamie dimon famously regretted the wamu buy not as much as he did bear stearns jpmorgan paid 19 billion to settle regulatory disputes related to these deals in 2015 dimon wrote in a shareholder letter he would not buy bear stearns again and he overpaid for wamu will jpmorgan whose shares up 5 in may 1 premarket trade have better luck with first republic will more banks fail read on for thoughts on these questions and more jpmorgan just agreed to take on first republic’s deposits and acquire its assets the fdic estimates that the risksharing agreement it worked out with jpmorgan will cost its deposit fund 30 billion jpmorgan’s takeover followed the california department of financial protection and innovation’s takeover of first republic the california financial regulator appointed the fdic as receiver following a failed bidding process to convince rival lenders to acquire the bank according to cnbc jpmorgan will reopen first republic bank’s 84 offices in eight states as jp morgan chase bank branches “all depositors of first republic bank will become depositors of jpmorgan chase bank national association and will have full access to all of their deposits” noted the fdic jpmorgan will assume all of first republic’s nearly 104 billion in deposits and buy most of its 2291 billion in assets the fdic estimated that its deposit insurance fund dif which totaled 1282 billion at the end of march would take a 13 billion loss from the deal jpmorgan which agreed to share gains and losses on singlefamily residential mortgages and commercial loans with the fdic will report an immediate profit from the transaction which it expects to exceed its future restructuring costs specifically bloomberg reports that jpmorgan expects to recognize a onetime gain of 26 billion tied to the transaction and to incur 2 billion in related restructuring costs over the next 18 months jp morgan is not assuming first republic’s corporate debt or preferred stock meanwhile dimon issued a statement praising the benefits of the deal for jpmorgan and the fdic the deal will minimize costs to the deposit insurance fund “modestly benefits our company overall is accretive to shareholders and helps further advance our wealth strategy” he said in a statement first republic was the next most at risk bank after the collapse of silicon valley bank svb’s failure cratered stock in first republic which had a strategy of issuing mortgages to wealthy individuals while requiring them to keep deposits there the rescue of first republic began on march 17 when jpmorgan and other banks deposited 30 billion there in a bid to stop a run on deposits like the one that felled silicon valley bank by then first republic’s stock had lost 88 of its peak value and i thought that not enough had been done to save first republic and quell investors’ fear about the financial system the damage to first republic became much clearer on april 24 when it reported in a first quarter earnings report that clients withdrew 102 billion in deposits 58 of its december 2022 deposits forcing the bank to borrow 92 billion according to he the new york times accounting for 72 of all recent borrowing from the fed’s discount window noted bca research in a conference call first republic ceo michael roffler withdrew the bank’s “previous financial guidance and opted not to take questions after an unusually brief conference call” cnbc noted like svb first republic’s failure springs from a bad bet on interest rates both banks acted as though the fed would not raise interest rates as much as it did as the washington post reported first republic invested in longterm home mortgages and government securities when rates were low with the fed funds rate around 5 first republic was raising new money to fund its operations from the fed and the federal home loan bank at rates some two percentage points higher than the 3 it earned on those longterm investments bert ely a banking consultant in alexandria va told the post “both of them essentially committed financial suicide by putting all these fixedrate assets on their books and exposing themselves to a rising interest rate environment” first republic has been bought and sold many times in the past as bloomberg reported merrill lynch paid 18 billion to acquire first republic in 2007 which bank of america acquired in 2009 in mid2010 general atlantic and colony capital paid 186 billion for first republic and then took it public will jpmorgan have better luck than it did with its wamu buy in 2015 dimon said that jpmorgan’s bear stearns and wamu acquisitions had taught him “expensive lessons that i will not forget” in a statement to shareholders he wrote “in the wamu case we thought we had robust indemnities from the fdic and the wamu receivership but as part of our negotiations with the department of justice that led to our big mortgage settlement we had to give those up the wamu deal might still make sense but at a much lower price to make up for the ongoing legal uncertainty” investors are bidding up jpmorgan stock in premarket trade this suggests that they believe dimon has learned his lesson and created iron clad limits to how much of first republic’s asset and loan losses jpmorgan will have to pay are more bank failures on the way while it is unclear whether more banks will fail in march 186 of them shared the traits that caused svb to fail that’s because these banks which were not named in a paper by three economists had a high level of uninsured deposits and considerable risk of loss to the value of their mortgages and longterm government securities due to rising interest rates meanwhile banks are still lending but they are tightening their credit standards in the wake of these big bank failures “lending is somewhat weaker than before the banking sector turmoil in march but we haven’t seen a pure credit crunch” gregory daco chief economist at eyparthenon told the post if borrowers can’t renew their loans or must pay higher interest rates this could lead to loan defaults which so far have not been the primary cause for 2023’s bank failures the challenge for investors is that nobody knows what will happen next to the value of first republic’s assets and to the broader banking system perhaps it would be good for the global banking system if jpmorgan adds considerably to its capital base to protect against unplanned for risks