First Republic Being Acquired By JPMorgan Raises M&A Expectations

Few bankers and investors could have predicted that regulators would permit the biggest lender in the United States to acquire another bank and grow much larger. Then, on Monday, Jamie Dimon defied all odds to close a deal to acquire First Republic Bank.

The CEO of JPMorgan Chase & Co. now anticipates that the sector will see additional mergers.

“Banks will consolidate,” Dimon told analysts on a conference call on Monday hours after winning a government auction for the San Francisco-based lender, which was seized overnight by regulators.

The clearance of the JPMorgan merger, which appeared impossible two months ago given the “too big to fail” label of 2008, may indicate a potential shift in the attitude of regulators as banks experience increased stress in a weakening economy.

Small and midsize lenders might also be taken over as their clients migrate to larger institutions, while large regional banks might merge with one another to more effectively compete with banking behemoths.

It’s not just Dimon. The March financial crisis, according to a number of analysts, business leaders, and investors, has created the ideal environment for the long-anticipated round of industry consolidation to take place. They claimed there are several explanations.

In the midst of a flight to safety, lenders with a high percentage of uninsured deposits are under pressure and may need to raise capital.

Following the crisis, there will probably be more expensive regulations, which could further harm banks’ profits and force them to find a suitor.

Additionally, as a recession approaches and economic activity slows, rising commercial real estate defaults and declining profits may also encourage alliances.

“There are a lot of signs pointing to the fact that the consolidation period has just begun,” said Dan Goerlich, a partner at PwC who focuses on U.S. financial deals.

According to federal data, there are currently more than 4,700 banks in the United States. Greg Hertrich, head of U.S. depository strategy at Nomura, anticipated that only half of those would make it through the following ten years.

That is comparable to a shakeout following the financial crisis of 2008. Government data showed a 14% decrease, or 800 institutions, in the number of independent commercial banks operating in the United States between 2007 and 2013.

“I’m already having knocks on my door,” Mona Dajani, a partner at law firm Shearman & Sterling LLP. “A lot of the regional or smaller banks are looking at being acquired. We’ve also been approached by some big bulge bracket banks that are also looking to acquire the regional banks.”

But there is still a significant obstacle. It is unclear how much authorities will permit banks, particularly bigger ones, to do when there is not a crisis.

Because it believes mergers may result in antitrust problems, the Biden administration has also adopted a tough stance on them. While awaiting clearances, several bank mergers have been delayed for months.

Regulators were originally hesitant to perform shotgun weddings, even in the context of recent bank failures.

Without purchasers lined up, Silicon Valley Bank and Signature Bank were closed in March, a move that some analysts and investors claimed sparked the most tumultuous period in banking since the 2008 meltdown.

Their way of thinking has changed, as evidenced by the First Republic case. Before it became clear last week that the bank would fail, regulators had for weeks allowed the bank to look for a private sector solution to its issue. This time, regulators intervened and held a weekend auction for the bank’s assets.

According to Jefferies analysts, Monday’s purchase also demonstrates that larger banks with deeper funds are better positioned than mid-sized lenders.

“This may have precluded other regional bank bidders from making the math work as well as it does for JPM,” they wrote.

(Adapted from


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