The fate of First Republic Bank hangs in the balance as PNC Financial Services Group and JPMorgan Chase & Co prepare to submit their final bids by midday Sunday.
United States regulators are overseeing the auction and are expected to reveal the winning bid, as well as the seizure of the lender, before Asian markets open Sunday night, according to individuals with knowledge of the matter.
U.S. regulators scramble to secure a buyer
With time running out, regulators are striving to find a buyer for the First Republic over the weekend. Approximately half a dozen banks have entered the bidding war for the troubled financial institution, which is on track to become the third major U.S. bank to collapse within two months.
Guggenheim Securities is assisting the Federal Deposit Insurance Corp (FDIC) in the auction process. Citizens Financial Group Inc is another potential contender vying for the First Republic. FDIC, Guggenheim, FRC, and the bidding banks have all opted not to comment on the ongoing situation.
The prospective sale of First Republic follows the recent failures of Silicon Valley Bank and Signature Bank, both of which saw deposits plummet, forcing the Federal Reserve to intervene with emergency measures to stabilize the markets.
The role of government support and First Republic’s background
The outcome of the First Republic deal will provide insight into the extent of government support required for the embattled bank.
While the FDIC traditionally insures deposits up to $250,000, regulators went a step further with Silicon Valley Bank and Signature, insuring all deposits in an effort to prevent additional bank runs. It is unclear whether this approach will be necessary for First Republic.
Established in 1985 by James “Jim” Herbert, First Republic was bought by Merrill Lynch in 2007 before returning to the stock market in 2010 after being sold by Merrill’s new owner, Bank of America Corp (BAC.N), in the wake of the 2008 financial crisis.
For many years, First Republic focused on attracting affluent customers by offering preferential rates on mortgages and loans. However, this strategy left the bank more vulnerable than other regional lenders with a less wealthy customer base.
With 68% of its deposits uninsured, First Republic faced significant challenges when more than $100 billion in deposits left the bank during the first quarter.
Although a group of 11 Wall Street banks provided an initial $30 billion lifeline in March, First Republic’s efforts to raise capital ultimately failed, partly because potential buyers were unwilling to accept the substantial losses associated with its loan book.
As a result, the FDIC concluded that the bank’s situation had worsened beyond repair, leaving no time to explore a private sector solution.
By April 28, First Republic’s market value had plunged to a mere $557 million, a staggering decline from its November 2021 peak of $40 billion.
The impending FDIC receivership for First Republic also impacted shares of other regional banks, with PacWest Bancorp (PACW.O) down 2% and Western Alliance (WAL.N) down 0.7%.
