What happened
Shares of JPMorgan Chase (JPM -0.60%), the largest bank by assets in the U.S., traded more than 3% higher as of 10:36 a.m. ET today after the bank announced that it would acquire most of the assets from First Republic Bank (FRCB).
So what
Earlier this morning, the Federal Deposit Insurance Corp. (FDIC) announced that First Republic, which had lost more than $100 billion of deposits in the first quarter of the year, had been seized by California state banking regulators, which then named the FDIC as a receiver.
The FDIC then announced that JPMorgan would acquire most of the assets from First Republic for $10.6 billion. The deal includes $173 billion of First Republic assets and nearly $30 billion of securities, as well as $92 billion of deposits and $28 billion of Federal Home Loan Bank borrowings.
The FDIC will provide loss-sharing assistance on the loans including 80% loss coverage on First Republic mortgages for the next seven years and 80% loss coverage on commercial loans for the next five years.
JPMorgan Chase will also repay all of the deposits that 11 large U.S. banks had previously injected into the bank and the FDIC's Deposit Insurance Fund is projecting a loss of $13 billion as a result of seizing First Republic, which was lower than many expected.
Now what
JPMorgan Chase expects to recognize a one-time gain of $2.6 billion from the deal, but this does not include the $2 billion the bank expects to spend on restructuring charges over the next two years. The bank also expects the acquisition to boost the bank's annual profits by $500 million.
Ultimately, First Republic had been leaking deposits and didn't really have many viable options, so it's good for the overall market and banking sector to see a resolution.
The deal should also benefit JPMorgan, largely because of the relationships and wealth management franchise that comes with First Republic and that will be beneficial on more of a long-term basis.
