First Republic: body asks banks to make proposals – 04/29/2023 – Market

The US government has asked JPMorgan, PNC and several other financial groups to bid on all or part of First Republic, while regulators try to determine how much it would cost taxpayers to take control of the struggling California lender.

In the past 24 hours, it has become clear to both the First Republic and the government that stabilizing the bank will almost certainly require the Federal Deposit Insurance Corporation (FDIC) to take over, four people briefed on the situation said.

First Republic shares have lost more than 97% of their value this year, weighed down by concerns about losses in its mortgage portfolio and other assets and massive outflows of deposits following the March 10 collapse of SVB (Silicon Valley Bank). .

On Wednesday, the FDIC asked about a dozen banks to say how much they would be willing to pay for First Republic deposits and assets and what level of losses the FDIC would have to absorb to close the deal, according to people familiar with the matter. with the discussions.

On Friday (28), the regulator returned to JPMorgan, PNC and several other creditors and offered them access to more detailed information about First Republic. Creditors would have until Sunday to present binding proposals.

JPMorgan, which led an earlier effort to stabilize the First Republic by bringing together a group of 11 banks to place $30 billion in deposits at the lender, is now preparing a bid for a post-resolution settlement, said three people briefed on the situation. JPMorgan and PNC declined to comment.

Over $100 billion withdrawn

It’s not clear how many other banks will bid or whether the FDIC will deem any of the bids acceptable. When the SVB failed, other lenders initially refused to bid, and the FDIC created an intermediary bank to give customers access to their money.

The FDIC said, “We cannot comment on or confirm reports that we are bidding on a publicly traded and operating bank.”

If San Francisco-based First Republic is acquired by the FDIC, it would be the third-largest bank failure in US history, after Washington Mutual in 2008 and SVB.

The First Republic’s business model of using low-cost deposits to fund cheap mortgages has come under pressure from rising interest rates. He revealed on Monday (24) that customers had withdrawn more than US$ 100 billion (R$ 500 billion) in deposits due to increased concerns about regional banks after the collapse of the SVB.

When a US bank fails, the FDIC solicits bids from other lenders for their deposits and assets to determine which will best protect customers and minimize the cost to the government’s deposit insurance fund.

The goal is to find a buyer before the FDIC really takes over. But that doesn’t always happen. In the case of the SVB, the FDIC used a so-called “systemic risk waiver” to insure all deposits, including those too large to be covered by deposit insurance. It is unclear whether it would do the same for large First Republic depositors.

The Wall Street Journal first reported that JPM and PNC were invited to bid.