First Republic Nears Federal Seizure as F.D.I.C. Seeks Buyers

Federal regulators seized the troubled First Republic Bank before financial markets opened on Monday to end the banking crisis that began with last month’s financial collapse, according to four people familiar with the matter. were vying on Saturday to sell it. of Silicon Valley Bank.

The effort, led by the Federal Deposit Insurance Corporation, comes after shares in First Republic have fallen 75% since Monday, when the bank said customers had withdrawn more than half of their deposits. What became clear last week was that no one had tried to save the First Republic before the government seized it. The big banks were worried that buying First Republic would cost them billions of dollars.

The FDIC is in talks with banks including JPMorgan Chase & Co. and PNC Financial Services Inc. about possible deals, two people familiar with the matter said. A deal could be announced as early as Sunday, and those people warned that the situation was changing rapidly and could still change. , eliminating the need for the government to insure deposits above the deposit insurance limit of $250,000.

An agreement may not be reached, in which case the FDIC will have to take control of the First Republic anyway and decide whether to take ownership. Federal authorities can then invoke the systemic risk exception to protect these larger deposits.

Over the weekend, the FDIC began researching potential buyers after it became clear that there were few options other than a government takeover, one of the people said. By Friday, the FDIC asked potential bidders to submit binding offers by Sunday, the person said.

The person concerned requested anonymity because the process is confidential. bloomberg and wall street journal I reported the meeting earlier. The FDIC declined to comment.

JPMorgan Chase and PNC were part of a consortium of 11 major banks that temporarily deposited $30 billion into First Republic last month as part of an industry effort to back it. However, that lifeline did not dispel concerns about the First Republic’s viability.

San Francisco-based First Republic, which has mostly coastal branches that serve wealthy clients working in industries such as technology and finance, is one of the most vulnerable rural areas since the banking crisis began unfolding in March. considered a bank. The sudden collapse of Silicon Valley Bank. First Republic revealed on Monday that he lost $102 billion in customer deposits in just three weeks in March, not including his $30 billion in deposits received from 11 major banks. It has given investors and customers a new surprise. The outflow was well over half of his $176 billion he had at the end of last year.

Like Silicon Valley Bank, the First Republic suffered losses on loans and investments as the Federal Reserve rapidly raised interest rates to fight inflation.

First Republic wanted to make a deal before it came under FDIC control. Because a government foreclosure would mean that the company’s shareholders and some of its bondholders would likely lose all or most of their investment. By Thursday night, the bank and its advisers continued discussions with the government, some banks and private equity firms about a potential deal. But neither the government nor the bank were ultimately interested in such an arrangement, he said, one of the people involved.

By Friday morning, it was clear to everyone involved that First Republic had no choice but to be bought by the government, the people said. First Republic’s stock closed down another 43% on Friday, continuing its decline in long-term trading.

First Republic was worth just $650 million as of Friday afternoon, down from more than $20 billion before the financial crisis in March. This reflects investors’ perception that shareholders may be wiped out.

A sale to a larger bank could mean that all First Republic deposits are protected as they become accounts at the acquiring bank. This includes uninsured deposits, which reached $50 billion at the end of March. This includes his $30 billion from 11 big banks.

By trying to line up a buyer for First Republic before the bank is formally under its control, regulators appear to want to avoid the turmoil that has characterized the collapse of Silicon Valley banks. It took weeks to sell the rest of the bank to First Citizens BancShares.

Governments prefer to find buyers for failed banks as quickly as possible to minimize losses to the government’s deposit insurance fund. The longer it takes to find a buyer, the more likely it is that customers and employees will abandon the failing bank, leaving a rapidly declining business behind.

Pittsburgh-based PNC, one of the nation’s largest regional banks, had previously considered acquiring First Republic. However, PNC was unable to close the deal because it would have to take heavy losses from First Republic’s relatively low-interest mortgages and other loans, according to one of his sources. . First Republic’s loan accounting issues have put off other potential buyers as well.

JP Morgan CEO Jamie Dimon was the primary architect of the plan to inject $30 billion into First Republic Bank. During the 2008 financial crisis, Dimon led the rescue of his two banks, Bear Stearns and Washington Mutual.

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