First Republic Bank (FRC.N) is facing the possibility of FDIC receivership, with the bank's shares taking a nosedive of nearly 50% in extended trading, a source familiar with the matter revealed. The anonymous source informed Reuters on Friday that the FDIC has concluded that the troubled regional lender's situation has worsened, and no more time is available to find a rescue through private channels.
Urgent talks have been held in recent days to save the lender, as the bank's advisers have not yet brokered a private-sector deal, according to three sources familiar with the matter. The FDIC, Treasury Department, and Federal Reserve have been working together to coordinate meetings with financial firms in order to find a solution for First Republic Bank, two of the sources disclosed.
The FDIC requested final bids from banks, including JPMorgan Chase & Co (JPM.N) and PNC Financial Services Group (PNC.N), for First Republic Bank by Sunday, as reported by Bloomberg News. Late on Thursday, the regulator sought indications of interest, such as proposed prices and estimated costs to the deposit insurance fund, the report added.
In response to a request for comment, the FDIC stated, "We would not comment on or confirm whether we are bidding an open institution." PNC Financial declined to comment on the Bloomberg report, while JPMorgan did not immediately reply to requests for comment.
A separate Wall Street Journal report on Friday stated that JPMorgan and PNC are competing to acquire First Republic following its possible seizure by the government, which could occur as soon as this weekend.
If First Republic enters receivership, it would become the third U.S. bank to do so since March. The bank reported a decline in deposits of over $100 billion in Q1 this week. First Republic's shares fell 43%, contributing to a weekly stock decline that erased 75% of its value. On Friday, the stock hit a record low of $2.99.
First Republic's market capitalization fell to nearly $557 million, a stark contrast to its peak valuation of over $40 billion in November 2021. Shares of other regional banks, including PacWest Bancorp (PACW.O) and Western Alliance (WAL.N), also experienced declines of 2% and 0.7%, respectively.
News of First Republic's potential receivership coincided with the Fed and FDIC admitting to supervisory shortcomings that led to the collapse of Silicon Valley Bank and Signature Bank in March. The Fed has vowed to implement stricter rules and more robust supervision of banks.
Despite a $30 billion deposit injection from major U.S. banks, First Republic has struggled to gain support from larger banks or private equity firms for its proposed "bad bank" creation or asset sales. First Republic announced plans to shrink its balance sheet and cut expenses during its Q1 earnings report on Monday.
John Guarnera, a senior corporate analyst at RBC BlueBay Asset Management, described First Republic's situation as "evolving" and noted that other regional banks appear to be in a different position.
As First Republic faces potential receivership, investors and industry experts will closely monitor the outcome. The bank's future will likely depend on the government's ability to find a suitable buyer and the potential acquirer's capacity to manage the troubled lender's assets and liabilities effectively.
First Republic's case serves as a reminder of the importance of sound management practices, risk mitigation, and transparency for financial institutions in maintaining the trust of customers, shareholders, and regulators.
