JPMorgan Chase, Bank of America asked for bids

A branch of First Republic Bank in Manhattan, New York City, April 24, 2023.

Spencer Pratt | Getty Images

U.S. regulators are seeking the bank’s best and final takeover offer. First Republic By Sunday afternoon, officials hope to calm the market and contain a period of uncertainty for local lenders.

JP Morgan Chase and PNC The banks are likely to be bidders for bankrupt banks whose creditors have been seized as trustees and will soon be sold to the winning bank, according to people familiar with the matter. The Wall Street Journal reported on the interest of these banks late Friday.

Other companies may also step up. bank of america CNBC has learned that it is one of several other agencies considering bidding for First Republic, according to others with knowledge of the situation.

A new First Republic owner could be announced as early as Monday if regulators, led by the Federal Deposit Insurance Corporation, receive an offer to be accepted by Sunday. That scenario would be the least confusing for First Republic customers who start the week knowing the bank is owned by a financially stable operator.

The First Republic auction could end a turbulent era for mid-sized US banks. Since the failure of Silicon Valley Bank in March, the First Republic has been hailed as the weakest link in the American banking system. The bank’s shares plunged 90% last month and plunged further this week after the First Republic revealed how dire the situation was.

Like SVB, which has served the tech startup community, First Republic is also a specialty lender based in California. Focused on serving America’s wealthy, it offered them low-interest mortgages instead of keeping cash in the bank. The model was unraveled in the wake of the SVB collapse as First His Republic customers withdrew more than $100 billion of his deposits, the bank said Monday.

Isn’t that a systemic risk?

As things got worse for First Republic, regulators initially asked a number of banking groups how much the company was worth, according to people familiar with the process. That group has recently been narrowed by the idea that regulators only share the information they need to make a final bid with the most serious competitors.

Regulators are expected to choose the bid that will cause the least economic hit to the FDIC to resolve First Republic, according to people familiar with the situation.

As an example, a failure of SVB would cost the FDIC’s Deposit Insurance Fund about $20 billion, the agency said. Member banks will likely be charged fees to replenish the FDIC funds over several years, leaving the largest banks to bear the brunt of the costs.

While the emergency acquisitions of SVB and Signature required triggering a systemic risk exception to protect uninsured depositors from losses, First Republic’s receivership probably does not. prize. This is because the new owners are likely to be able to handle the outflow of deposits. It took SVB’s trustees two full weeks to announce the transaction.

big things get big

The auction means that one of the largest banks in the United States will likely become even bigger and benefit from a government-brokered trusteeship. This leaves the FDIC with undesirable assets.

Such was the case last month when SVB was sold to First Citizens. The buyer won numerous concessions, including loss-sharing agreements. First Citizens’ stock price jumped 55% on news of the lucrative deal.

The potential bidders are all part of a group of 11 banks that banded together to inject $30 billion into First Republic last month. The move will help stem the outflow of larger deposits from mid-sized banks to top-four institutions, including JP Morgan and Wells Fargo, and give regulators more room to settle First Republic, CNBC said. reported last month.

Goldman, Wells Fargo absent

However, not all large banks that have participated in deposit injections have made offers. wells fargo, goldman sachs and city ​​group Neither is likely to bid, according to people familiar with the bank.

Wells Fargo is still working under the 2018 wealth cap imposed by the Federal Reserve. Goldman has made a strategic decision to turn away from personal finance and sell consumer loans. Citigroup offloads business units to simplify operations and improve risk management.

The acquisition makes the most sense for an institution looking to grow among the coastal affluent. First Republic branches are concentrated in California, New York, Boston and Florida.

First Republic’s advisers hoped to avoid a government takeover by persuading the largest US bank to back it up. One version of the plan that circulated recently would have asked banks to pay above-market interest rates on bonds on First Republic’s balance sheet. This will allow us to raise capital from other sources.

Ultimately, however, the banks did not put the brakes on their last efforts, and the government was poised to end the First Republic’s 38-year run.

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