June 16, 2024

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JPMorgan, Citizens, and PNC are bidding for First Republic

JPMorgan, Citizens, and PNC are bidding for First Republic

US regulators to save the First Republic are negotiating with at least three large banks bidding to buy all or part of the California lender.

The Federal Deposit Insurance Corporation, which is leading the government effort, has received bids from banks including JPMorgan Chase, PNC and Citizens, according to three sources familiar with the situation.

Over the course of Sunday, two people said, organizers went back to at least some of the bidders to ask for reconfigured bids and more information as they compared complex bids. It is still not clear if the deal will go through, and other bidders could appear.

JPMorgan, which led the effort to bail out the First Republic a month ago, is no longer acting as an advisor to the First Republic, according to a source familiar with the situation, allowing the bank to bid.

People close to the situation say the government is determined to finalize the sale to First Republic before the bank opens for business on Monday morning.

The First Republic and some government officials hoped the bank would negotiate a deal that would avoid receivership. But this now seems unlikely. The only offers that have been made so far hinge on the FDIC first closing down the First Republic and putting it into receivership.

All bidders submitted their bids relying on the FDIC’s insurance fund to cover some of the potential losses that could arise from the transaction, possibly by acquiring all or most of First Republic’s $30 billion, $500 million bond portfolio. not realized. losses.

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One question is whether the FDIC and the Federal Reserve need to grant what is called a “systemic risk exemption” as they did with Silicon Valley Bank and Signature Bank last month, which enables the FDIC to guarantee all deposits, including That is, those over $250,000. Eleven major banks, including JPMorgan and PNC, placed $30 billion in deposits with First Republic last month in an unsuccessful attempt to stabilize the bank.

Citizens and the PNC declined to comment on whether they had made a bid for First Republic. JPMorgan did not immediately respond to a request for comment. First Republic and the FDIC also declined to comment on the sale.

Speaking Sunday morning to CBS, Gary Cohn, a former Goldman Sachs banker and adviser to President Donald Trump, said: “What will most likely happen is that the FDIC will take control of the assets and then simultaneously sell the asset back to successful bidder. face the nation. “I think it will happen later this afternoon . . . before the markets open in Asia this evening.”

First Republic shares have lost more than 97 percent of their value this year, spurred by concerns about paper losses on mortgage book and other assets and massive deposit outflows after the March 10 collapse of the Silicon Valley bank.

On Monday, the bank reported that it lost $100 billion in deposits in the first three months of the year, sparking fears that it will soon not be able to operate on its own.

On Wednesday, the FDIC asked about a dozen banks to tell them what they would be willing to pay for First Republic deposits and assets, and what level of losses the FDIC would have to absorb to get the deal through, according to people familiar with the discussions. On Friday, the regulator went back to JPMorgan, PNC and several other lenders and offered to give them access to more detailed information about First Republic.

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Guggenheim Securities, which serves as financial advisor to the FDIC on First Republic’s sales operation, late last week reached out to a handful of private equity firms and other investment firms to see if any would be interested. But sources close to the sale say none of the companies have decided to bid.

Ro Khanna, a Democratic congressman from California, on Sunday encouraged the FDIC to work with private sector organizations to come up with a solution for First Republic.

“The FDIC needs to look at the least expensive alternative, that’s their mandate,” he told CBS News when asked if the big banks should be barred from getting the lender.

For now, they may need to work with banks and private capital to save the First Republic. This is the state we are in.”