Federal regulators are reportedly in a race to seize and sell San Francisco-based First Republic Bank as early as this weekend, as fears of a collapse increase.[0] First Republic’s stock dropped around 75% last week after the company revealed that customers had pulled more than $100 billion in deposits during the banking sector turmoil last month.[1] Even though First Republic received a $30 billion bailout from the country’s 11 largest banks in March, investors remained concerned about the bank’s financial stability.[2] The bank was scrambling to shore itself up with $92 billion in loans from the government, as well as a $30 billion temporary infusion from a consortium of big banks, including JPMorgan Chase, PNC and Bank of America.[0]
This comes as attention has turned to First Republic as the weakest link in the American banking system since the failure of Silicon Valley Bank in March.[3] The bank’s shares sank 90% last month and then collapsed further this week after First Republic disclosed how dire its situation is.[3] The development came days after First Republic Bank’s stock plunged when the bank said its customers withdrew $102 billion in the first quarter of the year, more than half of the $176 billion it held in deposits at the end of 2022.[0]
First Republic’s advisors had hoped to avoid a government takeover by persuading the biggest US banks to help once again.[3] A recent proposal included requesting that banks pay higher-than-market rates for the bonds held on First Republic’s balance sheet, thus allowing the company to obtain additional funds from alternative sources.[3] According to reports, First Republic has allegedly made overtures to some of the organizations that participated in the rescue agreement in March to acquire assets, including securities and mortgages.[4] It argued that any financial hit from those purchases would be less severe than the potential ramifications of First Republic’s complete collapse.[4]
The Federal Deposit Insurance Corp. (FDIC) has asked several high-powered banks, including JPMorgan Chase & Co., PNC Financial Services Group Inc., US Bancorp and Bank of America Corp., to submit final bids for First Republic Bank by Sunday after gauging initial interest earlier in the week, according to sources.[5] First Republic is a US regional bank, and we expect some sort of resolution this weekend to the FRC saga, with bids due from several large banks.[6] In a usual take-over proceeding, the common equity can get wiped out, but the rest of the capital structure usually survives.[6] Unfortunately, there is nothing commonplace about FRC.[6] This is a highly distressed entity that nobody seems to desire.[6] In an effort to avoid further strain on its insurance fund through complete receivership, the FDIC has been actively advocating for a restructuring.[6]
An executive at J.P. Morgan Asset Management is unsure how US regional banks are “going to operate” when the Federal Deposit Insurance Corporation (FDIC) and Federal Home Loan Banks (FHLB) emergency lending programs expire, warning that the possible collapse of First Republic Bank may cause a domino effect.[7] The FDIC and First Republic declined to comment, while JPMorgan, PNC, and First Republic declined to comment.[8]
0. “Regulators rushing to sell S.F.’s First Republic Bank amid fears of collapse, report says” San Francisco Chronicle, 29 Apr. 2023, https://www.sfchronicle.com/bayarea/article/first-republic-bank-17994980.php
1. “US Banking Crisis Not Over, ‘Naive’ To Think First Republic Is Last Victim: J.P. Morgan Asset Management CIO” The Daily Hodl, 30 Apr. 2023, https://dailyhodl.com/2023/04/29/us-banking-crisis-not-over-naive-to-think-first-republic-is-last-victim-j-p-morgan-asset-management-cio/
2. “Federal regulators race to seize and sell First Republic Bank” ABC News, 29 Apr. 2023, https://abcnews.go.com/Business/federal-regulators-race-seize-sell-republic-bank/story?id=98962248
3. “Big banks including JPMorgan Chase, Bank of America asked for final bids on First Republic” CNBC, 29 Apr. 2023, https://www.cnbc.com/2023/04/29/first-republic-frc-jpmorgan-chase-bank-of-america-asked-for-bids.html
4. “First Republic Is Hanging On for Dear Life. Where Does It Go From Here?” The San Francisco Standard, 28 Apr. 2023, https://sfstandard.com/business/first-republic-is-hanging-on-for-dear-life-where-does-the-bank-go-from-here/
5. “FDIC races to find buyer for collapsing First Republic Bank: report” New York Post , 30 Apr. 2023, https://nypost.com/2023/04/29/fdic-races-to-find-buyer-for-collapsing-first-republic-bank/
6. “First Republic: When Preferred Equity Goes To Zero, Part 2 (NYSE:FRC)” Seeking Alpha, 29 Apr. 2023, https://seekingalpha.com/article/4598081-first-republic-when-preferred-equity-goes-to-zero-part-2
7. “First Republic’s crisis is not an isolated incident – suggests JPMorgan exec” Cointelegraph, 30 Apr. 2023, https://cointelegraph.com/news/first-republic-s-crisis-is-not-an-isolated-incident-suggests-jpmorgan-exec
8. “JPM eyes First Republic as FDIC prepares takeover” Axios, 29 Apr. 2023, https://www.axios.com/2023/04/29/first-republic-fdic-jpm-takeover