The first republic auction is underway and a deal is expected on Sunday

April 29 (Reuters) – U.S. regulators were trying to get the sale of First Republic Bank ( FRCN. ) over the weekend, with nearly half a dozen banks bidding, sources said on Saturday, making it the third-largest U.S. bank. The bank will fail in two months.

Citizens Financial Group Inc ( CFG.N ), PNC Financial Services Group ( PNC.N ) and JPMorgan Chase & Co ( JPM.N ) are among bidders vying for First Republic in an auction run by the Federal Deposit Insurance Corp. For sources familiar with the subject. US Bancorp ( USB.N ) was among the banks the FDIC asked to submit a bid, according to Bloomberg.

Guggenheim Securities is advising the FDIC, two sources familiar with the matter said.

The FDIC process began this week, three sources said. Bidders were asked to submit unrestricted offers by Friday and were reading First Republic’s books over the weekend, one of the sources said.

A deal is expected to be announced on Sunday night before Asian markets open, while the regulator is likely to say it has taken over the lender, three of the sources said. A source said the auction was pending till noon on Sunday.

Currently, interested banks are evaluating options to see what they want to bid for, a source said, adding that lenders would bid for all of FRC’s deposits, a substantial portion of its assets and some of its loans. .

US Bancorp did not immediately respond to a request for comment. First Republic, the FDIC, Guggenheim and other banks declined to comment.

Reuters Graphics

A tough deal

The deal for First Republic comes less than two months after Silicon Valley Bank and Signature Bank failed in a deposit flight from US lenders, forcing the Federal Reserve to take emergency measures to stabilize markets.

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Even as markets calm, the deal for the First Republic will be closely watched for the level of support the government will provide.

The FDIC officially insures deposits up to $250,000. But fearing the banks would run further, regulators took the extraordinary step of insuring all deposits at both Silicon Valley Bank and Signature.

A security guard stands outside a First Republic Bank branch in San Francisco, California, U.S., on April 28, 2023. REUTERS/Loren Elliott

It remains to be seen whether regulators will do so in the First Republic. They require the approval of the Treasury Secretary, the Chairman, and super-majorities of the Federal Reserve and FDIC boards.

In an effort to find a buyer before closing the bank, the FDIC is turning to some of the largest U.S. lenders. Big banks have been encouraged to bid for FRC’s assets, a source said.

JP Morgan already holds more than 10% of the country’s total bank deposits and would need a special government waiver to add more.

“A big bank buying all or most of the banks is healthy for First Republic clients because it puts them on a broader and more stable base,” said Eugene Flood, president of A Cappella Partners, who serves as an independent director. He was speaking at First Citizens BancShares and Janus Henderson and in a personal capacity. First Citizens agreed to buy the failed Silicon Valley bank last month.

A shocking fall

First Republic was founded in 1985 by James “Jim” Herbert, the son of a community banker in Ohio. Merrill Lynch bought the bank in 2007, but relisted in 2010 after Merrill’s new owner, Bank of America Corp ( BAC.N ), sold it following the 2008 financial crisis.

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Over the years, First Republic has attracted high-net-worth customers with preferential rates on mortgages and loans. This strategy made regional lenders with less affluent customers more vulnerable. The bank had high uninsured deposits which was 68% of deposits.

The San Francisco-based lender saw more than $100 billion in deposits flee in the first quarter, leaving it scrambling to raise cash.

Despite a $30 billion lifeline from 11 Wall Street banks in March, efforts proved futile as buyers balked at the prospect of realizing big losses on its loan book.

A source familiar with the situation told Reuters on Friday that the FDIC had decided that the lender’s condition had deteriorated and there was not much time left to pursue a bailout by the private sector.

On Friday, the First Republic’s market value hit a low of $557 million in November 2021, down from its peak of $40 billion.

Shares of some other regional banks also fell on Friday as it became clear that First Republic was headed for an FDIC receivership, with PacWest Bancorp ( PACW.O ) down 2% and Western Alliance ( WAL.N ) down 0.7% after the bell. .

Reporting by Chris Prentice, Saeed Azhar, Lanan Nguyen, Paridosh Bansal; Additional reporting by David French, Greg Roumiliotis, Andra Shalal, Anirban Sen and David Lauder Editing by Megan Davis

Our Standards: Thomson Reuters Trust Principles.

Lanon Nguyen

Thomson Reuters

Lananh Nguyen is US finance editor at Reuters in New York, leading coverage of US banks. He joined Reuters in 2022 after reporting on Wall Street at The New York Times. Lannan spent more than a decade at Bloomberg News in New York and London, where he wrote extensively on banking and financial markets, and he previously worked for Dow Jones Newswires/The Wall Street Journal. Lannon holds a BA in Political Science from Tufts University and an M.Sc. in Finance and Economic Policy from the University of London.

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