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FDIC prepares to place First Republic under receivership

Published 04/28/2023, 06:16 AM
Updated 04/29/2023, 10:15 AM
© Reuters. FILE PHOTO: A trader works at the post where First Republic Bank stock is traded on the floor of the New York Stock Exchange (NYSE) in New York City, U.S., March 16, 2023.  REUTERS/Brendan McDermid

By Greg Roumeliotis

NEW YORK (Reuters) - The U.S. Federal Deposit Insurance Corporation (FDIC) is preparing to place First Republic Bank (NYSE:FRC) under receivership imminently, a person familiar with the matter said on Friday, sending shares of the lender down nearly 50% in extended trading.

    The U.S. banking regulator decided the troubled regional lender'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.

Big banks including JPMorgan Chase & Co (NYSE:JPM) and PNC Financial Services Group (NYSE:PNC) are vying to buy First Republic following its seizure by the government, which could come as soon as this weekend, the Wall Street Journal reported on Friday.

PNC, JPMorgan and First Republic declined to comment on the report, while the FDIC did not immediately respond to a request for comment

If the San Francisco-based lender falls into receivership, it would be the third U.S. bank to collapse since March. First Republic said this week its deposits had slumped by more than $100 billion in the first quarter.

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

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

Shares of some other regional banks also fell, with PacWest Bancorp down 2% after the bell while Western Alliance (NYSE:WAL) was down 0.7%.

    The FDIC, the Treasury Department and the Federal Reserve were among the government bodies that orchestrated meetings with financial companies about a lifeline for the bank, Reuters reported earlier on Friday.

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

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

Large 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 (NYSE:BAC)., Citigroup Inc (NYSE:C)., JPMorgan and Wells Fargo (NYSE:WFC) & Co.

But First Republic struggled to find support from larger banks or private equity firms on its proposed move to create a so called "bad bank" or sell assets such as securities and mortgage book.

The large banks who placed the deposits either declined to comment or were not available to comment.

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

© Reuters. A person walks past a First Republic Bank branch in San Francisco, California, U.S. April 28, 2023. REUTERS/Loren Elliott

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

"The rest of the regional bank system feels like it's in a different place than where FRC is," he said.

Latest comments

So many people here hoped for deal to keep stock alive...sad fools.
I believe First republic must be bankrupted. It's a nothing but a moral hazard. Receivership? Are you kiddIng me?
So what happens to deposits over 250K? This could get worse im sure there is another distressed bank out there.
the corrupted will bail everyone out
You would be begging for a bailout if your bank went under and it probably will if people's deposits start disappearing
"We are from the Government and we are here to Help". Like a FDIC Training Day. There will be a Test with multiple choice answers this next Friday. Never let a Bank Failure go to waste. Bad Bank! Bad Bank!
Forget about the Fed raising rates anymore. Other regionals can have runs on them too
Debt ceiling crisis. Banks collapsing. We must be nearing an all time high?
Shareholders (me) screwed by horrible fed underwhelming oversight!!
Bet the corporate blowhards at FRC were more focused on diversity and inclusion (I.e. perversity and delusion) then actual banking!
Can only agree with Jason, what a pathetic and childish thing to say the only delusional person here you.
You can guarantee that Corey is correct. They put the shareholders money into ESG investments Now the shareholders are fried and the depositors are screwed . It’s not racist to point out those facts- in fact Pretty sure anyone that disagrees with THE FACT the bank is worth Zero because of ESG and it’s idea is delusional
Actually they alot of the loans were interest only loans mainly to large homes owners the fact that you've jumped to the conclusion that it is to do esg just shows how clueless and delusional you really are. Infact they only scored in the 42% percentile in the last esg report.
What happened to the congress hearing and regulators sleeping at the wheel statement !!!??
Crazy panic at work….shortsellers are making lots of money on panic selling. FED and bad bankregulation have caused this problem therefor both congress and FED must fix it
BS because the SP500 is going up. What a drama
Crazy the FED allows this speculation to happen, and offer no solutions. All of this is caused by interest rate risk created from the Fed itself.
They only bail out their class of people.... Maybe us "DaPlarables" need to quite working and pull everything out of the stock market entirely?
do any of you know what receivership means... apparently from your posts you don't.......
call it what you want, ultimately it will be a bail out at taxpayers expense, one way or the other
Where is healthy capitalism ? You try you risk you win you reap the reward , you try you fail goodbye !These politicians won’t let it happen , their selfish focus is on being reelected and therefore they manipulate the markets with the support of the incompetent Janet Yellen and FED officials .Saving bad business and raising ( again !) the debt ceiling will exacerbate the problems .. for us and the future generations .Thinking that you can keep raising debts and get away with it is delusional and irresponsible .
who g...s a for that purpose?
Ok Ivan, lmao
healthy capitalism??? that's been gone for years. corruption has ruined that. all downhill from here.
Ah yes, the free market. Where banks have a zero reserve requirement for your money but also get bailouts when they fail.
the best Capitalism ever...never lose money, cash it forever
My SVB stocks a still -99.99%, can you save me too?
And the left will continue to pretend that we still have Capitalism..
Tom looking for confirmation bias in all the wrong places
lol. When you study the different biases, you see them everywhere. sorry, random thought. 😅Keep an eye on JOBY and LILM
He's not wrong
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