US regulators rush to secure sale of California First Republic bank, which is on course to become the third U.S. lender to fail this year, a string of collapses that has drawn uncomfortable parallels with the 2008 global financial crisis.
Half a dozen US banks are vying to take over the struggling First Republic, according to reports over the weekend, with top bidders including JPMorgan Chase, Citizens Financial and PNC Financial Services.
The Washington DC-based Federal Deposit Insurance Corp (FDIC) is managing the bidding process and set a deadline late last week for potential buyers to submit non-binding bids.
The suitors were evaluating the First Republic assets they want to buy on Sunday before making final offers, according to reports, raising hopes a deal could be reached on Sunday evening, avoiding market instability when markets open Asians.
Any agreement would come less than two months after Bank of Silicon Valley (SVB) and Signature Bank both failed as investors withdrew funds en masse, forcing the Federal Reserve to step in with emergency measures.
If state-funded financial support was needed to complete the deal, it would require the approval of the Secretary of the Treasury, the President, and supermajorities of the Federal Reserve and FDIC boards.
Friday, trade in the First Republic was briefly halted after its share price fell nearly 50%, the second such fall in a week. Its market value hit a low of $557 million, down from its peak of $4 billion in November 2021.
A few days earlier, the bank revealed that it had lost $100 billion in deposits during last month’s banking crisis, as depositors reacted to the collapse of Signature and SVB by withdrawing liquidity from weaker lenders.
Although the rate of withdrawals has slowed at many banks, First Republic, which specializes in high net worth individuals, appears to be in jeopardy despite receiving an injection of 30 billion dollars of deposits of 11 major Wall Street banks in March.
As time is running out to secure a private sale, the FDIC has invited some of America’s biggest banks to submit bids to rescue San Francisco-based First Republic.
JP Morgan already holds more than 10% of all US bank deposits and would need a special government waiver to add more.
“For a large bank, buying all or most of the bank might be healthier for First Republic customers because it might put them on a broader, more stable platform,” said Eugene Flood, managing partner and chairman of the board of A Cappella Partners, who serves as an independent director at First Citizens Bancshares and Janus Henderson. He was speaking personally. First Citizens agreed to buy the bankrupt SVB last month.
On Friday, the FDIC was believed to be preparing to place the First Republic in receivership before securing depositors’ funds. Without an agreed offer, receivership is still considered an option.
The Federal Reserve has admitted in a report that he was slow to consider the pressure on banks from a sharp rise in interest rates, which lowered the value of their financial assets even as it increased their profitability.
The mismatch caused panic and a flight of funds to safe-haven financial institutions.
U.S. central bank officials also blamed reforms under President Donald Trump, which had the effect of diluting oversight of mid-sized banks such as SVB and First Republic.
Michael Barr, the Federal Reserve’s vice chairman for supervision, who led the review, said the U.S. central bank needed to tighten its rules after SVB’s collapse.
“Federal Reserve supervisors have not taken strong enough action,” he said, pointing to “too weak” regulatory standards, a supervisory system that lacked urgency and risks. for the wider banking system resulting from light regulation of medium-sized banks. .
“After the failure of SVB, we need to strengthen supervision and regulation of the Federal Reserve,” he said.