First Republic Bank (FRCB)

[crudeoil24]

JPMorgan, PNC Submit Bids to Buy First Republic in Government-Led Sale -- 3rd Update
10:09 pm ET April 30, 2023 (Dow Jones) Print
By Andrew Ackerman, David Benoit, Rachel Louise Ensign and Nick Timiraos

The Federal Deposit Insurance Corp. is reviewing bids for First Republic Bank and preparing to seize the lender, according to people familiar with the matter, weeks after a $100 billion deposit run shattered its business model.

Big banks including JPMorgan Chase & Co. and PNC Financial Services Group Inc. submitted offers for the troubled lender earlier Sunday, the people said, and the FDIC went back to the bidders with questions in the evening. The agency is expected to name a winner before First Republic opens Monday morning, the people said.

The March 10 failure of Silicon Valley Bank sent First Republic's stock down sharply, spooking well-heeled customers with balances exceeding the FDIC's $250,000 insurance limit. The stock has lost more than 90% of its value since early March.

The First Republic fire sale is an astonishing comedown for a lender that was long the envy of finance. With some $233 billion in assets at the end of the first quarter, it would be the second-largest bank to fail in U.S. history, behind Washington Mutual Inc. in 2008. Rounding out the top four are Silicon Valley Bank and Signature Bank, a New York-based lender that also failed in March.

Analysts said exactly how regulators resolve First Republic will be important in shoring up confidence in the broader banking system. Some said they don't expect a First Republic failure to kick off a new round of turmoil in the industry.

First Republic lost so many deposits so quickly that its business model no longer had much value, making it harder for the bank to raise capital, said Steven Kelly, a senior researcher at the Yale Program on Financial Stability.

"This is the last stages of that initial panic. First Republic's problems started as a result of SVB and Signature. It was a run on the business model," Mr. Kelly said. "This isn't the story of 2008, where one bank went down and investors focused on the next biggest bank, which would wobble."

First Republic's business model was built around gathering big deposits from rich customers and paying little or no interest on them. The bank, in turn, offered low-interest mortgages to those very same customers.

The strategy began to fray after the Federal Reserve started raising rates to quell inflation. Last month's customer panic doomed it.

A group of the nation's biggest banks, including JPMorgan and PNC, came to the rescue with a $30 billion deposit. First Republic hired outside advisers to craft a plan to shore up its finances, but buyers and investors were unwilling to pump money into the bank absent government support.

The deposit run cost First Republic dearly. In its first-quarter earnings report last week, the bank said it filled the $100 billion hole left by fleeing depositors with expensive loans from the Federal Reserve and Federal Home Loan Bank. The bank, in short, was facing a grim future where it would earn less on its loans than it was paying to borrow.

The earnings report sent the bank's stock down nearly 50% in one day. It continued to tumble as the week went on and closed at $3.51 a share on Friday, down from $115 in early March.

Regulators and bankers hoped the panic had eased after the government stepped in to make uninsured depositors at SVB and New York-based Signature Bank whole. But First Republic's badly damaged balance sheet left it with few good options.

Only a handful of banks could easily absorb First Republic's assets and deposits. Some of those, such as Wells Fargo & Co., face regulatory hurdles to expansion. Others are still digesting recent deals for other banks. Some banks that took a look at First Republic opted not to bid, including U.S. Bancorp and Bank of America Corp., according to people familiar with the matter.

Any sale that leads large banks to grow bigger could vex Democrats who have pushed for limits on industry concentration, including banking. But Rep. Ro Khanna (D., Calif.) said he disagreed with other progressive Democrats who have said the nation's largest banks shouldn't be allowed to get bigger by swallowing First Republic.

"I think that the FDIC needs to look at the lowest-cost alternative. That's their mandate," he said on CBS's "Face the Nation" on Sunday. "Right now, they may need to work with banks and private capital to save First Republic. That is the state we're in."

--Ben Eisen and AnnaMaria Andriotis contributed to this article.

Write to Andrew Ackerman at [e-mail], David Benoit at [e-mail], Rachel Louise Ensign at [e-mail] and Nick Timiraos at [e-mail]


(END) Dow Jones Newswires

April 30, 2023 22:09 ET (02:09 GMT)

Copyright (c) 2023 Dow Jones & Company, Inc.