April 29 (Reuters) – US regulators are trying to secure a sale of First Republic Bank (FRC.N) over the weekend, with about half a dozen banks bidding, sources said on Saturday, in what is likely US’s third-biggest bank bankrupt in two months.
Citizens Financial Group Inc (CFG.N), PNC Financial Services Group (PNC.N) and JPMorgan Chase & Co (JPM.N) are among bidders competing for First Republic in an auction process conducted by the Federal Deposit Insurance Corp Sources familiar with the matter. US Bancorp (USB.N) was also among the banks the FDIC had asked to submit a bid, according to Bloomberg.
Guggenheim Securities is advising the FDIC, two sources familiar with the matter said.
The FDIC process started this week, three of the sources said. Bidders were asked to submit non-binding offers by Friday and studied First Republic’s books over the weekend, one of the sources said.
A deal is expected to be announced Sunday night before Asian markets open, with regulators likely to say at the same time that they have seized the lender, three of the sources said.
US Bancorp did not immediately respond to a request for comment. First Republic, the FDIC, Guggenheim and the other banks declined to comment.
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DIFFICULT BUSINESS
A deal for First Republic would come less than two months after Silicon Valley Bank and Signature Bank failed amid a deposit flight by US lenders, forcing the Federal Reserve to intervene with emergency measures to stabilize markets.
While markets have since calmed down, a deal for the First Republic would be watched closely to see how much support the government needs to provide.
The FDIC officially insures deposits up to $250,000. But fearing more bank runs, regulators took the extraordinary step of insuring all deposits with both Silicon Valley Bank and Signature.
It remains to be seen whether regulators would need to do the same for First Republic. They would have to be approved by the Treasury Secretary, the President, and the supermajorities of the Boards of the Federal Reserve and the FDIC.
In an attempt to find a buyer before the bank closes, the FDIC is reaching out to some of the largest US lenders.
JPMorgan already holds more than 10% of the country’s total bank deposits and would need special government exemption to add more.
“For a large bank, it might be healthier for First Republic’s customers to buy all or most of the bank because they could put it on a broader and more stable platform,” said Eugene Flood, president of A Cappella Partners, who works as an independent Director serves at First Citizens BancShares and Janus Henderson and spoke in a personal capacity. First Citizens agreed to buy the failed Silicon Valley Bank last month.
AMAZING AUTUMN
First Republic was founded in 1985 by James “Jim” Herbert, son of a community banker in Ohio. Merrill Lynch acquired the bank in 2007, but it was relisted publicly in 2010 after it was sold by Merrill’s new owner Bank of America Corp (BAC.N) following the 2008 financial crisis.
For years, First Republic lured wealthy clients with preferential interest rates on mortgages and loans. This strategy made it more vulnerable than regional lenders with less affluent customers. The bank had a high proportion of uninsured deposits, accounting for 68% of assets.
The San Francisco-based lender saw more than $100 billion in deposit outflows in the first quarter and struggled to raise cash.
Despite an initial $30 billion bailout from 11 Wall Street banks in March, the effort proved futile, in part because buyers balked at the prospect of taking big losses on their loan books.
A source familiar with the situation told Reuters on Friday that the FDIC had determined the lender’s position had deteriorated and there was no time to pursue a private sector bailout.
As of Friday, First Republic’s market value had bottomed out at $557 million, compared to its November 2021 peak of $40 billion.
Shares in some other regional banks also fell on Friday as it became clear that First Republic was headed for FDIC receivership, with PacWest Bancorp (PACW.O) down 2% after the bell and Western Alliance (WAL.N) down 0. 7% declined. .
Reporting by Chris Prentice, Saeed Azhar, Lananh Nguyen, Paritosh Bansal; Additional reporting by David French, Greg Roumeliotis, Andra Shalal, Anirban Sen and David Lawder Editing by Megan Davies
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Lananh Nguyen
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