What does JPMorgan get after acquiring First Republic Bank?

On the morning of May 1, JPMorgan became the “white knight” of First Republic Bank, ending weeks of speculation about the fate of the 14th largest bank in the US by 2022.

From there, JPMorgan's $3.7 trillion asset base will increase by about $200 billion thanks to the acquisition of First Republic.

Speaking about the deal, JPMorgan CEO Jamie Dimon said the acquisition of First Republic was encouraged by the US government and would only bring modest benefits to the country's largest bank.

But analysts say the deal also makes strategic sense for JPMorgan, with more benefits than that.

Increasing presence in Silicon Valley

The collapse of First Republic (and Silicon Valley bank SVB in March) helped JPMorgan gain a bigger share of the startup and founder clients it had its eye on.

JPMorgan opened a fintech building in Palo Alto, California in 2022. The bank also recently launched its Capital Connect platform to connect early-stage startups with investors, according to CNBC. The acquisition of First Republic will give JPMorgan the opportunity to expand its footprint in Silicon Valley.

The acquisition of First Republic would help JPMorgan increase its presence in Silicon Valley, where the bank wants to attract early-stage startups. Photo: Inc

About 32 of First Republic's 86 branch locations are in the San Francisco Bay Area, with the rest in attractive and affluent markets like Los Angeles and New York City, JPMorgan said.

Owning First Republic means JPMorgan gets a slice of the venture capital and technology client market in North Carolina, said Ken Leon, director of equity research at CFRA, the world's largest independent investment research firm.

On a call with industry analysts on May 1, JPMorgan CFO Jeremy Barnum pointed to the Northern California market as particularly attractive to the bank. First Republic has a lot of good business banking relationships, and JPMorgan likes that business, Dimon said.

Many advisors to wealthy clients

The acquisition of First Republic also helps boost JPMorgan’s wealth management ambitions. About 150 senior advisors from First Republic will join JPMorgan’s brokerage business, JPMorgan Advisors. First Republic managed $289.5 billion in assets as of March 2023, according to its first-quarter 2023 earnings report.

“If JPMorgan can keep its wealth advisors and not lose too much, I think it will be very beneficial. Their clients are some of the wealthiest people in the San Francisco Bay Area,” said Alexander Yokum, an equity analyst at CFRA.

The acquisition of First Republic helps to polish the role of "white knight" in the banking industry of JPMorgan, where Mr. Jamie Dimon is chairman and CEO. Photo: The Guardian

JPMorgan has been focused on boosting its position in the financial advisory space since appointing Kristin Lemkau as head of the bank's wealth management division in late 2019.

In 2021, JPMorgan announced that it wants to double the number of employees for JPMorgan Advisory from 450 to 1,000 within 5 to 7 years.

Meanwhile, First Republic's private wealth management division has been aggressively recruiting teams of advisors for wealthy clients to enhance its services over the years.

While some First Republic advisers have left in recent weeks, JPMorgan executives hope the deal will bring stability to those who remain, ending the exodus.

Financial efficiency

With the backing of the Federal Deposit Insurance Corporation (FDIC), the acquisition was a good deal for JPMorgan.

The bank will take over about $173 billion worth of loans, $30 billion of securities and $92 billion of deposits from First Republic, including $30 billion raised from major banks in March to help the bank maintain stability.

The FDIC will cover 80% of losses on any commercial or residential real estate loans from First Republic's portfolio.

First Republic Bank poses less risk to JPMorgan than Bear Stearns or Washington Mutual, two lenders JPMorgan acquired in 2008. Photo: Al Jazeera

After paying $10.6 billion to the FDIC and taking on about $2 billion in restructuring costs from the company, JPMorgan will reap about $500 million a year, a figure that Mr. Dimon and Mr. Barnum called “a conservative estimate.”

The deal gives JPMorgan additional financing and strategic consistency, while also demonstrating the bank's strong balance sheet, according to Wells Fargo analyst Mike Mayo.

Although First Republic failed to dig itself out of the financial hole, its assets are hardly as “toxic” as those of banks that failed during the global financial crisis 15 years ago.

JPMorgan bought New York investment bank Bear Stearns and Seattle-based Washington Mutual in 2008. While those deals helped burnish JPMorgan’s reputation, they left the bank with billions of dollars in unforeseen legal fees. This acquisition is much less risky, Mr. Dimon said .

Nguyen Tuyet (According to Insider, Quartz)

Source: https://www.nguoiduatin.vn/jpmorgan-duoc-gi-sau-khi-thau-tom-ngan-hang-first-republic-a605945.html