Global Courant 2023-04-30 01:10:30
A First Republic bank branch in Manhattan on April 24, 2023 in New York City.
Spencer Plat | Getty Images
US regulators have asked banks about their best and latest takeover bids for First Republic by Sunday afternoon, in a move authorities hope will calm markets and end a period of uncertainty for regional lenders.
JPMorgan Chase And PNC are likely bidders for the ailing lender, who people in the know said would be seized and immediately sold to the winning bank. The Wall Street Journal reported interest from those banks late Friday.
Other companies will probably go a step further. bank of America is among other institutions considering a bid for First Republic, CNBC has learned, according to other people with knowledge of the situation.
As regulators led by the Federal Deposit Insurance Corp. received an acceptable offer on Sunday, a new owner of the First Republic may be announced early Monday. That scenario would cause the least amount of disruption for First Republic customers, who would start the week knowing their bank is now owned by a financially stable operator.
The First Republic auction could end a tumultuous period for medium-sized US banks. Since the bankruptcy of Silicon Valley Bank in March, attention has shifted to First Republic as the weakest link in the US banking system. Shares of the bank fell 90% last month and then plunged further this week after First Republic announced the dire situation.
Like SVB, which caters to the tech startup community, First Republic is also a California-based specialty lender. It focused on serving wealthy Americans, tempting them with cheap mortgages in exchange for leaving cash at the bank. That model unraveled in the wake of the SVB’s collapse as First Republic clients withdrew more than $100 billion in deposits, the bank announced Monday.
No system risk?
As First Republic’s situation worsened, regulators initially cast a wide net, asking a large group of banks what they thought the company was worth, a person with knowledge of the process said. That group has shrunk in recent days, with the idea that regulators would only share information needed to make a final bid with the most serious contenders.
Regulators are expected to pick the bid that results in the smallest financial blow to the FDIC for dissolving First Republic, according to a person with knowledge of the situation.
For example, the bankruptcy of the SVB will cost the FDIC’s Deposit Insurance Fund about $20 billion, the agency said. The largest banks will bear most of those costs because member banks will likely have to pay fees to replenish the FDIC fund over several years.
While the emergency takeovers of SVB and Signature both rely on a systemic risk exception to protect uninsured savers from losses, that probably won’t be necessary in the First Republic trusteeship. That’s because the new owner would presumably be able to handle the deposit outflow; in the case of the SVB’s suspension of payment, it took a full two weeks to announce a deal.
The big ones get bigger
The auction means it’s likely that one of the largest U.S. banks will grow even bigger and benefit from a government-brokered receivership process that will see the FDIC get hold of unwanted assets.
That’s what happened when SVB was sold to First Citizens last month; the buyer won a series of concessions, including loss-sharing agreements. Shares of First Citizens shot up 55% on news of the favorable deal.
The likely bidders are all represented in the group of 11 banks that teamed up last month to inject $30 billion in deposits into First Republic. That move helped stem the larger outflow of deposits from medium-sized banks to top-four institutions, including JPMorgan and Wells Fargo, giving regulators breathing space to sort out First Republic, CNBC reported last month.
Goldman, Wells Fargo sit down
But not every major bank that participated in the deposit injection will make a bid. Wells Fargo, Goldman Sachs And Citi group according to people with knowledge of the banks, not all will make an offer.
Wells Fargo is still operating under a 2018 asset ceiling imposed by the Federal Reserve. Goldman has made a strategic decision to move away from retail financing and is selling consumer loans. Citigroup has unburdened business units to simplify operations while improving risk controls.
The acquisition makes the most sense for institutions looking to grow in the affluent coast; First Republic’s offices are concentrated in California, New York, Boston and Florida.
First Republic’s advisers had hoped to prevent a government takeover by persuading the largest US banks to help again. A version of the plan recently circulated involved banks being asked to pay above market rates for bonds on First Republic’s balance sheet, which would allow it to raise capital from other sources.
But in the end, the banks wouldn’t bite the last ditch effort, putting the government on the verge of ending the First Republic’s 38-year run.
