U.S. regulators have asked banks to submit 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. JPMorgan Chase and PNC are likely bidders for the ailing lender, which would be seized in receivership and immediately sold to the winning bank, according to people with knowledge of the situation. Other companies such as Bank of America are also weighing bids.
The First Republic auction may end a tumultuous period for midsized U.S. banks. Since the failure of Silicon Valley Bank (SVB) in March, attention has turned to First Republic as the weakest link in the American banking system. Shares of the bank sank 90% last month after clients withdrew more than $100 billion in deposits following SVB’s collapse.
First Republic is a California-based specialty lender that focused on serving rich Americans by offering low-rate mortgages in exchange for leaving cash at the bank; however, this model unraveled after SVB’s failure.
Regulators are expected to choose the bid that results in the smallest financial hit to the FDIC for resolving First Republic; however, it is unlikely they will need to invoke systemic risk exception since deposit outflows can presumably be handled by whoever wins ownership.
The auction means it’s likely one of America’s biggest banks will grow even larger and benefit from a government-brokered receivership process that leaves undesirable assets with FDIC holding them.
Wells Fargo, Goldman Sachs and Citigroup are each unlikely to make bids due to various reasons such as asset caps imposed by Federal Reserve or strategic decisions made regarding retail finance or simplifying operations while improving risk controls.
Overall, institutions looking to grow among coastal affluent areas should consider bidding since First Republic branches are concentrated mainly across California, New York City area including Boston & Florida.
If regulators receive an acceptable offer by Sunday then a new First Republic owner could be announced early Monday, creating the least disruption for customers who would start the week knowing their bank was now owned by a financially-stable operator.