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FDIC asks JPMorgan, PNC for final First Republic bid due Sunday




(Bloomberg) — The Federal Deposit Insurance Corp. has asked banks including JPMorgan Chase & Co. and PNC Financial Services Group Inc. to submit final bids for First Republic Bank by Sunday after gauging initial interest earlier this week, according to people with knowledge of the matter.

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The regulator contacted the banks late Thursday to seek indications of interest, including a proposed price and an estimated cost for the agency’s deposit insurance fund. Based on those submissions on Friday, the regulator invited at least two firms to the next stage of the bidding process, the people said, asking not to be named to discuss the confidential talks.

A spokesperson for JPMorgan declined to comment. Spokesmen for PNC and the FDIC did not immediately respond to requests for comment sent outside normal business hours.

The bidding process initiated by regulators — after weeks of fruitless talks between banks and their advisers — could pave the way for a more orderly sale of First Republic than the protracted auctions that followed the failures of Silicon Valley Bank and Signature Bank last month. The authorities are stepping in after a particularly steep fall in the company̵[ads1]7;s stock over the past week, which is now down 97% this year.

Unclear to some involved in the process is whether regulators could use a bid for a so-called open market solution that avoids formally declaring First Republic a failure and seizing it.

The stock’s plunge — which leaves the company with a market value of $650 million — has made such a takeover at least somewhat more feasible.

Jumbo mortgage

But finances are not the only obstacle to making a deal.

JPMorgan is among a small number of giant banks that have already accumulated more than 10% of nationwide deposits, making the firm ineligible under US regulations to acquire another deposit-taking institution. The authorities had to make an exception to allow the country’s biggest bank to become even bigger.

As of Friday night, the FDIC had not yet made a decision to put First Republic into receivership, people with direct knowledge of the matter said. Representatives for California’s banking regulator, which would take the lead in declaring whether the San Francisco-based lender has failed, did not respond to requests for comment.

First Republic’s balance sheet weighs a mountain of low-interest loans, including an unusually large portfolio of jumbo loans to wealthy clients. Such debts have lost value during interest rate hikes, leaving the firm facing losses if forced to sell them.

During last month’s regional banking crisis, wealthy customers and businesses pulled their cash from banks with such balance sheet errors. 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 cash demands.

Waiting for help

A group of 11 banks that deposited $30 billion into First Republic last month — giving it time to find a private sector solution — have shown reluctance to come together to make a joint investment. A few proposals that emerged in recent days called for a consortium of stronger banks to buy assets from First Republic for more than market value. But there was no agreement.

Instead, some stronger firms have been waiting for the authorities to offer assistance or put the bank into payment processing, a solution they see as cleaner – and potentially end up with a sale of the bank or its parts at attractive prices.

But settlement is an outcome the FDIC prefers to avoid, in part because of the prospect of taking a multibillion-dollar hit to its own deposit insurance fund. The agency is already planning to impose a special assessment on the industry to cover the costs of SVB and Signature Bank’s failure last month.

–With assistance from Max Reyes.

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