FDIC said to be reviewing bids for First Republic, announcement expected by Monday morning

By Mark DeCambre

First Republic said to be drawing bids from JP Morgan, PNC Financial and Bank of America

U.S. regulators asked banks for their best and final takeover offers for First Republic by Sunday afternoon, in a move that authorities hope will calm markets and cap a period of uncertainty for regional lenders, CNBC reported Saturday.

First Republic Bank (FRC) reportedly received bids from lenders including JPMorgan Chase & Co. (JPM) and PNC Financial Services Group (PNC) on Sunday, according to the Wall Street Journal, citing people familiar with the matter. According to the Journal, the FDIC questioned bidders Sunday evening, and the winning bid is expected to be announced before the start of trading Monday morning.

However, JPMorgan is among a small number of giant banks that have already amassed more than 10% of nationwide deposits, making the firm ineligible under US regulations to acquire another deposit-taking institution. Authorities would have to make an exception to allow the country's largest bank to get even bigger.

Bank of America (BAC) is among several other institutions that are weighing a potential bid for First Republic, according to CNBC.

The regulator reached out to banks late Thursday seeking indications of interest, including a proposed price and an estimated cost to the agency's deposit insurance fund, Bloomberg reported Saturday.

If regulators led by the Federal Deposit Insurance Corp. receive an acceptable offer by Sunday, it's possible a new owner for First Republic could be announced early Monday. That scenario would create the least disruption for First Republic customers, who would start the week knowing that their bank was now owned by a financially stable operator.

The San Francisco-based lender has lost nearly all of its value so far this year after tumbling 43% on Friday, amid reports that the financial institution's condition had deteriorated so far as to make a private-sector rescue difficult, with an outright government bailout of the lender seen unlikely.

Weighing on First Republic's balance sheet are large amounts of low-interest loans, including a large portfolio of jumbo mortgages to wealthy clients. Such debts have lost value amid interest-rate hikes, leaving the firm facing losses if forced to sell them.

Reuters reported that a seizure of the San Francisco-based First Republic by regulators was "imminent," and the Wall Street Journal reported that a deal for all or parts of its assets would occur only after it was taken over by the Federal Deposit Insurance Corporation.

Read:First Republic asset sales would pose 'contained damage' to residential mortgage bond market, says Goldman

Representatives of First Republic, the FDIC, JPMorgan and PNC either declined to comment or didn't immediately respond to request for comment.

Bank stocks had been under pressure in recent weeks after lenders Silicon Valley Bank and Signature collapsed nearly two months ago.

A collective attempt to support First Republic back in March, including nearly a dozen lenders injecting some $30 billion in deposits, failed to stem concerns or anchor the bank's shares.

First Republic's first-quarter results earlier this week revealed that it had $104.5 billion of deposits in the first quarter, down by $72 billion over the prior three months. And that figure would have been worse without the deposit injection from the likes of lenders including JPMorgan.

See: Why First American Trust's chief investment officer sees no quick end to regional-bank turmoil

First Republic also announced plans to cut its workforce by as much as 25% and shrink its balance sheet substantially to stabilize its business, implying that growth prospects for the bank could be hampered.

The bank's shares closed at $3.51 on Friday and pointed to further declines in after-hours trading.

The broader market, however, appeared to shrug off First Republic worries.

The S&P 500 and the Dow Jones Industrial Average advanced firmly while the Nasdaq Composite's daily rise helped it cap its highest close for the tech-heavy index since Sept. 12, 2022, according to Dow Jones Market Data.

-Mark DeCambre

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04-30-23 2259ET

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