The FDIC is preparing to place First Republic under receivership

April 28 (Reuters) – The U.S. Federal Deposit Insurance Corporation (FDIC) is preparing to put First Republic Bank ( FRC.N ) into receivership, a person familiar with the matter said on Friday, sending the lender’s shares down nearly 50% in expanded trade.

The U.S. banking regulator decided that the troubled regional lender̵[ads1]7;s position has deteriorated and there is no more time to pursue a rescue through the private sector, the source told Reuters, requesting anonymity because the matter is confidential.

If the San Francisco-based lender collapses, it would be the third US bank to collapse since March. First Republic said earlier this week that its deposits had fallen by more than $100 billion in the first quarter.

Representatives from First Republic and the FDIC did not immediately respond to requests for comment.

Shares in the bank closed down 43%, worsening a share rout that has wiped 75% of its value this week. The stock lost more than half its value on Friday, hitting a record low of $2.99.

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At its lowest, the bank had a market value of nearly $557 million, far from its peak value of more than $40 billion in November 2021.

Shares of some other regional banks also fell with PacWest Bancorp ( PACW.O ) down 2% after hours while Western Alliance ( WAL.N ) was down 0.7%.

The FDIC, the Treasury Department and the Federal Reserve were among the government agencies orchestrating meetings with financial firms about a lifeline for the bank, Reuters reported earlier on Friday.

News of the imminent move to put First Republic into receivership comes the same day the Federal Reserve and FDIC detailed their oversight lapses before deposit runs caused the collapse of Silicon Valley Bank and Signature Bank in March.

The Fed’s assessment of its inadequacy in identifying problems and pushing for fixes at Santa Clara, Calif.-based SVB came with promises of tougher supervision and stricter rules for banks.

Major banks had orchestrated an earlier lifeline for First Republic, placing $30 billion in combined deposits from U.S. banking heavyweights, including Bank of America Corp. (BAC.N), Citigroup Inc. (CN), JPMorgan Chase & Co (JPM.N) and Wells Fargo & Co (WFC.N).

But First Republic struggled to find support from major banks or private equity firms for the proposed move to create a so-called “bad bank” or sell assets such as securities and mortgages.

The major banks that placed the deposits either declined to comment or were unavailable for comment.

First Republic, which reported its first-quarter earnings on Monday, had said it plans to shrink its balance sheet and cut expenses by cutting executive pay, reducing office space and laying off 20% to 25% of employees in the second quarter.

John Guarnera, senior corporate analyst at RBC Bluebay Asset Management, said the First Republic case is an “evolving situation.”

“The rest of the regional banking system feels like it’s in a different place than where the FRC is,” he said.

Reporting by Medha Singh in Bengaluru; Editing by Saumyadeb Chakrabarty

Our standards: Thomson Reuters Trust Principles.

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