(Bloomberg) — Federal Deposit Insurance Corp., JPMorgan Chase & Co. and asked banks including PNC Financial Services Group to submit final bids for First Republic Bank by Sunday after calculating initial interest earlier in the week. Knowledge of the subject.
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The regulator approached the banks late on Thursday seeking indications of interest, including the proposed price and the estimated cost of the agency’s deposit insurance fund. Based on those submissions on Friday, the regulator invited at least two companies to the next stage of the bidding process, according to people who asked not to be named to discuss confidential negotiations.
A spokeswoman for JP Morgan declined to comment. Spokesmen for PNC and the FDIC did not immediately respond to requests for comment sent outside normal business hours.
The auction process, launched by regulators after weeks of fruitless talks between the banks and their advisers, could pave the way for a tidy sale of First Republic, rather than last month’s auction that followed the failure of Silicon Valley Bank and Signature Bank. . Officials are stepping in after a particularly sharp drop in the company’s stock over the past week, which is now down 97% this year.
What’s unclear to some involved in the process is whether regulators could use the auction as a so-called open-market solution that would formally declare the First Republic a failure and avoid a takeover.
The stock’s plunge — which left the company with a $650 million market value — has made such an acquisition at least partially possible.
Jumbo mortgages
But finances aren’t the only barrier to making a deal.
JPMorgan is one of a small number of giant banks that already accumulate more than 10% of nationwide deposits, making the company ineligible under U.S. regulations to acquire another deposit-taking firm. Authorities must grant an exemption to allow the country’s largest bank to expand even further.
As of Friday evening, the FDIC still had not reached a decision on whether to place First Republic into receivership, people with direct knowledge of the matter said. Representatives for California’s banking regulator, which takes the lead in declaring whether the San Francisco-based lender failed, did not respond to requests for comment.
First Republic’s balance sheet is a mountain of low-interest loans, including an unusually large portfolio of jumbo mortgages for wealthy clients. Such loans have lost value amid rising interest rates, forcing the company to sell them at a loss.
During last month’s regional banking crisis, wealthy consumers and businesses pulled their money from banks with such deficiencies on their balance sheets. In response, the Federal Reserve opened an emergency lending facility, giving banks a way to borrow against some of their holdings to meet any demand for cash.
Waiting for help
A group of 11 banks that have deposited $30 billion in the Republic since last month – giving them time to find a private-sector solution – have been reluctant to join forces in a joint investment. Some of the proposals that have emerged in recent days call for a consortium of powerful banks to buy assets from the First Republic above their market value. But no agreement was reached.
Instead, some strong firms are waiting for the government to provide a bailout or acquire the bank, a decision they see as pure — and end up selling the bank or pieces of it at attractive prices.
But receivership is something the FDIC wants to avoid in part because of the potential for a multibillion-dollar hit to its own deposit insurance fund. The agency already plans to impose a special assessment on the industry to cover the cost of SVB and Signature Bank’s failures last month.
–With help from Max Reyes.
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