Inside JPMorgan's late-night scramble to buy First Republic

Updated Mon, May 1, 2023, 2:15 PM 5 min read

The US government informed JPMorgan after 1 a.m. Monday that it won an auction for the troubled San Francisco lender. The news capped a marathon weekend of back-to-back meetings with people from every JPMorgan business line, fueled by takeout Mexican and lots of coffee. The CFO even pulled an all nighter.

In Pittsburgh, the news wasn’t as good. There, PNC Financial Services Group (PNC) knew by roughly 12:30 a.m. that its bid wasn't successful, and it didn't know which bank was the winner. Regulators announced the deal at 3:22 a.m. ET.

The decision made just hours before markets opened in the US on Monday ended speculation about the destiny of the nation’s 14th-largest lender after a bidding war managed by the Federal Deposit Insurance Corporation attracted some of the biggest names in banking.

Bank of America (BAC), the second-largest US lender, ultimately decided against an offer, as did US Bancorp (USB), the nation’s fifth-largest bank.

Citizens Bank (CFG) and Fifth Third Bancorp (FITB), sizable regional lenders based in Providence, R.I. and Cincinnati, also participated in the bidding, according to The Wall Street Journal.

JPMorgan v. PNC

For those watching the auction unfold, the competition really came down to two heavyweights: JPMorgan and PNC. The nation’s largest and sixth-largest banks.

Both had survived the 2008 crisis by getting even bigger via a series of acquisitions encouraged by the US government.

In JPMorgan’s case, it picked up New York investment bank Bear Stearns and Seattle thrift Washington Mutual in March and September of 2008, giving it a coast-to-coast empire. PNC got Cleveland rival National City in October of that year and eventually established a foothold in nearly every top metro area.

This Jan. 12, 2017, photo shows sign for a PNC Bank in Pittsburgh. (AP Photo/Gene J. Puskar) — A PNC sign in Pittsburgh. (AP Photo/Gene J. Puskar) · ASSOCIATED PRESS

Both were also involved in a prior attempt in March to stabilize First Republic with uninsured deposits, a rescue attempt that received encouragement from Treasury Secretary Janet Yellen and other top Washington officials. JPMorgan kicked in $5 billion and PNC kicked in $1 billion. Another nine banks contributed an additional $24 billion.

The infusion bought First Republic time but it didn’t solve the bank’s underlying crisis of confidence. A disclosure last Monday that it lost more than $100 billion in deposits during the first quarter sent its stock tumbling again.

Working through the weekend

So JPMorgan got another call Wednesday evening fielded by JPMorgan CFO Jeremy Barnum. Would the bank be interested in gathering information for a bid to acquire First Republic after its seizure by the FDIC?

To answer that question, the bank convened roughly 800 people. It tapped executives from its investment banking, commercial banking and private banking units as well as tax advisers, mortgage experts, asset and wealth management experts and valuation specialists.

The assignment for every business at the bank was to look at First Republic and to report on what it expected a deal to be worth to its particular unit.

FILE - JPMorgan Chase & Company Chairman and CEO Jamie Dimon testifies at a Senate Banking Committee annual Wall Street oversight hearing, Sept. 22, 2022, on Capitol Hill in Washington. Dimon told investors Tuesday, April 4, 2023, that government and banks should work to adjust industry regulations following the collapse of Silicon Valley Bank and Signature Bank last month, saying that the financial system needs to be adjusted so one bank's failure does not “cause undo panic and financial harm.” (AP Photo/Jacquelyn Martin, File) — JPMorgan Chase CEO, here testifying in Congress last year, is once again playing the role of rescuer during a banking crisis. (AP Photo/Jacquelyn Martin, File) · ASSOCIATED PRESS

On Saturday, each team presented its findings to JPMorgan’s senior managers via a series of meetings from 9 a.m. to 6 p.m. Many on the executive floors ate at their desks as they worked.

The pros of buying First Republic were that it would help restore some stability to the banking system and it would lower the costs JPMorgan might have to pay to the FDIC if First Republic were to fail without a buyer in hand. The FDIC charges banks a special assessment to cover the costs of industry failures.

The risks were many, too. There were potential legal headaches, credit challenges and the possibility that First Republic employees could weaken the franchise by leaving.

'Up all night'

Bids were due Sunday at noon. After the first batch came in, it was clear to JPMorgan that not all bidders wanted the same assets. Some were willing to take First Republic’s jumbo mortgages and some were not, said a person familiar with JPMorgan’s negotiations.

The FDIC needed a way to conform the bids so that they could start comparing them, this person said. Regulators began asking JPMorgan to resubmit its bid with additional parameters and refocus it around certain categories.

“They started trying to get everyone on the same page,” this person said.

JPM submitted four new bids between noon and 9 pm on Sunday. The final call came from the FDIC at roughly 1:15 a.m., this person said, and First Republic was seized at roughly 2 a.m. The bank's CFO didn’t get much sleep Sunday night, this person said.

“There were a lot of people up all night,” Mr. Dimon said on a call with reporters Monday.

By 5:30 a.m., some of Dimon's top executives, including Marianne Lake and Jennifer Piepszak, were on a plane and flying to California to meet their new colleagues. First Republic now belonged to JPMorgan.

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