Several large banks, including JPMorgan Chase & Co. and PNC Financial Services Group Inc., are reportedly interested to bid for purchasing First Republic Bank. According to reports, US banking regulator Federal Deposit Insurance Corp. (FDIC) could seize and sell First Republic bank this weekend.
FDIC is an independent agency created by US Congress to maintain stability and public confidence in the nation’s financial system.
The announcement comes as the FDIC is getting ready to immediately put First Republic into receivership after determining there is no longer time to attempt a private sector rescue of the ailing regional lender.
The San Francisco-based lender would be the third American bank to fail since March if it enters receivership, after the failure of Silicon Valley Bank and Signature Bank. Panicky First Republic clients withdrew almost $100 billion in deposits in a few days of the SVB catastrophe.
According to The Wall Street Journal, First Republic contemplated a sale or an outside capital infusion and recruited investment bankers to advise on its alternatives.
Additionally, a proposal to sell some of its loans, securities, or both at a premium to market value was floated. It would be the second-largest bank to collapse in the United States history, with $233 billion in assets at the end of the first quarter.
On Monday, First Republic presented a dreadful quarterly profits report that included fresh information on the severity of the harm caused by the deposit run.
The bank claimed that costly loans from the Federal Reserve and Federal Home Loan Bank were used to plug the hole left by fleeing depositors. That left the lender facing a future scenario in which it might have to pay more in liabilities than it would have made in assets.
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The bank’s stocks dropped roughly 50% in one day. It fell further during the week, closing at $3.51 a share on Friday, down from $115 on March 8 when SVB announced a loss that alarmed investors.
Customers with balances above the $250,000 deposit insurance limit started to withdraw their money in large quantities in March out of fear for the stability of a few smaller banks, which set off turbulence in the banking industry.
A few days following SVB’s demise, the New York-based Signature Bank went down.
Regulators and bankers anticipated that once the government intervened to compensate uninsured depositors at SVB and Signature, the panic had subsided. However, First Republic had few viable options due to its severely damaged balance sheet.
The assets and deposits of First Republic might be easily absorbed by a small number of banks. Some of them, such as Wells Fargo & Co., encounter regulatory barriers to growth. Others are still processing recent bank agreements.
Both JPMorgan and the Pittsburgh-based PNC have a history of stepping up in times of need.
In 2008, JPMorgan acquired the failing Bear Stearns, and after the government seized it, it took over the activities of Washington Mutual Inc.
Jamie Dimon, the CEO, used his expertise in crisis management to establish himself as a statesman among bank executives. He frequently utilises his position to advise government leaders and advocate for policy changes he believes would boost the economy.
With support from the government, PNC acquired the struggling Cleveland-based lender National City Corp. during the financial crisis of 2008. According to the Federal Reserve, it was the sixth-largest bank in the country at the end of last year.
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