US regulators were working late into the night to resolve the Bank of the First Republic crisis on Sunday evening after a noon deadline for submitting final offers to take over the struggling lender expired.
The Federal Deposit Insurance Corp. had asked the banks, including JPMorgan Chase & What., PNC Financial Services Group Inc., and Citizen Financial Group Inc. to submit offers, according to people familiar with the matter. Bank of America Corp. and United States Bancorp were also invited but decided not to bid, according to the people, who asked not to be identified discussing confidential talks.
If no agreement is reached, regulators would have the option of seizing the First Republic and taking possession of the bank.
Spokespersons for JPMorgan, PNC, Citizens Financial, US Bancorp, Bank of America and the FDIC declined to comment.
The bidding process launched by regulators – after weeks of fruitless talks between the banks and their advisers – could pave the way for a more orderly sale of the First Republic than the drawn-out bidding that followed the failures of Bank of Silicon Valley And Signature Bank last month. Authorities are intervening after a particularly steep drop in the company’s shares over the past week, which is now down 97% this year.
Some people involved in the process are unsure whether regulators could use an offer for a so-called open banking solution that avoids officially declaring the First Republic a failure and seizing it.
The stock’s decline – leaving the company with a market value of $650 million – has made such a takeover at least a little more feasible.Play Video
But finances aren’t the only obstacle to closing a deal.
JPMorgan is one of a handful of giant banks that have already amassed more than 10% of deposits nationwide, making the company ineligible under US regulations to acquire another depository institution. The authorities should make an exception to allow the biggest bank in the country to become even bigger.
As of Friday evening, the FDIC had yet to make a decision on whether to put the First Republic into receivership, people with direct knowledge of the matter said. Representatives from the California banking regulator, who would take the lead in declaring whether the San Francisco-based lender failed, did not respond to requests for comment.
A mountain of low-interest loans weighs on First Republic’s balance sheet, including an unusually large portfolio of giant mortgage loans to wealthy customers. These debts have lost value due to rising interest rates, leaving the company facing losses if forced to sell them.
During last month’s regional banking crisis, wealthy customers and businesses withdrew their money from banks with such flaws on their balance sheets. In response, the Federal Reserve opened an emergency lending facility to give banks a way to borrow against some of their holdings to meet any demand for liquidity.
Waiting for help
A group of 11 banks that deposited $30 billion in the First Republic in March – giving it time to find a solution in the private sector – have been reluctant to come together to make a joint investment. A few proposals that have surfaced in recent days called for a consortium of stronger banks to buy First Republic assets at above market value. But no deal materialized.
Instead, some stronger companies waited for the government to offer aid or put the bank into receivership, a resolution they see as cleaner – and potentially ending in a sale of the bank or its coins to foreign investors. attractive prices.
But receivership is an outcome the FDIC would rather avoid, in part because of the prospect that it will inflict a multibillion-dollar hit on its own deposit insurance fund. The agency is already planning to impose a special levy on the industry to cover the cost of the bankruptcies of SVB and Signature Bank last month.
–With the help of Lydia Beyoud and Max Reyes.