First republic auction underway, with agreement expected by Sunday

April 29 (Reuters) – U.S. regulators are trying to push through a sale of First Republic Bank ( FRC.N ) over the weekend, with about half a dozen banks bidding, sources said on Saturday, in what is likely to be the third major US bank falls within two months.

Citizens Financial Group Inc ( CFG.N ), PNC Financial Services Group ( PNC.N ) and JPMorgan Chase & Co ( JPM.N ) are among bidders competing for First Republic in an auction process run by the Federal Deposit Insurance Corp, according to sources familiar with the matter. US Bancorp ( USB.N ) was also among the banks the FDIC had asked to make 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 of the sources said. The bidders were asked to make non-binding offers by Friday and studied 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, with the regulator likely to say at the same time that it had seized the lender, three of the sources said. The bids must be delivered by Sunday noon, said one of the sources.

At the moment, the interested banks are considering options to see what they want to bid for, one of the sources said, adding that it is likely that lenders will bid for all of FRC’s deposits, a significant portion of its assets and some of its liabilities. .

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

DIFFICULT DEAL

A deal for First Republic would come less than two months after Silicon Valley Bank and Signature Bank failed amid a flight of deposits from US lenders, forcing the Federal Reserve to step in with emergency measures to stabilize markets.

While markets have since calmed, a deal for First Republic will be closely watched for the amount of support the government has to provide.

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

It remains to be seen whether regulators will have to do the same at First Republic. They would need the approval of the Treasury Secretary, the President, and the supermajorities on the boards of the Federal Reserve and the FDIC.

In an effort to find a buyer before closing the bank, the FDIC is turning to some of the largest US lenders. Major banks had been urged to bid for FRC’s assets, one of the sources said.

JPMorgan already has more than 10% of the nation’s total bank deposits and would need a special government waiver to add more.

“For a big bank to buy all or most of the bank could be healthier for First Republic customers because it could put them on a broader and more stable platform,” said Eugene Flood, president of A Cappella Partners, which acts as an independent director. at First Citizens BancShares and Janus Henderson and spoke in a personal capacity. First Citizens agreed to buy the failed Silicon Valley Bank last month.

FANTASTIC AUTUMN

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 it listed on the stock market again in 2010 after being sold by Merrill’s new owner, Bank of America Corp ( BAC.N ), following the 2008 financial crisis.

For years, First Republic lured high-net-worth clients with preferential mortgages and loans. This strategy made it more vulnerable than regional lenders with less affluent customers. The bank had a high level of uninsured deposits, which accounted for 68% of deposits.

The San Francisco-based lender saw more than $100 billion in deposits flee in the first quarter, making it difficult to raise money.

Despite an initial $30 billion lifeline from 11 Wall Street banks in March, the effort proved futile, in part because buyers balked at the prospect of having to realize big losses on their loan book.

A source familiar with the situation told Reuters on Friday that the FDIC decided that the lender’s position had deteriorated and there was no more time to pursue a rescue through the private sector.

As of Friday, First Republic’s market cap had hit a low of $557 million, down from a peak of $40 billion in November 2021.

Shares in some other regional banks also fell on Friday as it became clear that First Republic was headed for FDIC receivership, with PacWest Bancorp ( PACW.O ) down 2% after the hour and Western Alliance ( WAL.N ) down 0 .7%.

Reporting by Chris Prentice, Saeed Azhar, Lananh Nguyen, Paritosh Bansal; Additional reporting by David French, Greg Roumeliotis, Andra Shalal, Anirban Sen and David Lawder Editing by Megan Davies

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