The First Republic auction is underway, and a deal is expected on Sunday

April 29 (Reuters) – U.S. regulators are trying to finalize a sale of First Republic Bank (FRCN) over the weekend, sources said Saturday, with nearly half a dozen banks bidding for what is likely to be the third-largest U.S. lender. The bank fails in two months.

Citizens Financial Group Inc (CFG.N), PNC Financial Services Group (PNC.N) and JPMorgan Chase & Co (JPM.N) are among the bidders vying for First Republic in the auction process run by Federal Deposit Insurance Corp., according to to sources familiar with the matter. US Bancorp (USB.N) was also among the banks that asked the FDIC to submit an offer, according to Bloomberg.

Two sources familiar with the matter said Guggenheim Securities is advising the FDIC.

Three sources said the FDIC process began this week. One source said bidders were asked to submit non-binding offers by Friday and had been studying First Republic books over the weekend.

Three sources said a deal is expected to be announced on Sunday evening before Asian markets open, and the regulator is likely to say at the same time it has taken over the bank. One of the sources said that the date for submitting the bids is at noon on Sunday.

Interested banks are currently evaluating options to see what they are willing to bid on, one source said, adding that lenders are likely to bid for all of FRC’s deposits, a large portion of its assets and some of its liabilities. .

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

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Hard bargain

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

And while the markets have calmed down since then, the First Republic deal will be watched closely to see how much support the government has to offer.

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

A security guard stands outside a First Republic Bank branch in San Francisco, California, US, April 28, 2023. REUTERS/Lauren Elliott

It remains to be seen if regulators will have to do this at First Republic as well. They would need the approval of the Treasury Secretary, the President, and a supermajority on the boards of directors of the Federal Reserve and the FDIC.

In an effort to find a buyer before the bank closes, the FDIC is turning to some of the largest lenders in the United States. One of the sources said major banks have been encouraged to bid for FRC’s assets.

JPMorgan already holds more than 10% of all bank deposits in the country and would need a special government dispensation to add more.

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

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Stunning fall

First Republic was founded in 1985 by James “Jim” Herbert, the son of an Ohio community banker. Merrill Lynch acquired the bank in 2007, but it was listed on the stock market again in 2010 after it was sold by Merrill’s new owner, Bank of America Corp (BAC.N), in the aftermath of the 2008 financial crisis.

For years, First Republic has attracted high net worth clients with preferential rates on mortgages and loans. This strategy made them more vulnerable than regional lenders with less affluent clients. The bank had a high percentage of uninsured deposits at 68% of deposits.

The San Francisco-based lender saw more than $100 billion in deposits flee in the first quarter, leaving it scrambling to raise cash.

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

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

By Friday, First Republic’s market capitalization bottomed out at $557 million, down from its peak of $40 billion in November 2021.

Shares of some other regional banks also fell on Friday as it became clear that First Republic was on its way to FDIC receivership, with PacWest Bancorp (PACW.O) falling 2% after Bell and Western Alliance (WAL.N) fell 0.7. %.

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

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