April 28 (Reuters) – The Federal Deposit Insurance Corporation (FDIC) is preparing to put First Republic Bank (FRC.N) into receivership soon, a person familiar with the matter said Friday, sending shares of the lender down nearly 50%. in extended trading.
Because the issue is a matter of confidentiality, the US banking regulator decided that the situation of the troubled regional lender had deteriorated and there was no time left to pursue a bailout through the private sector, the source told Reuters, who requested anonymity.
Major banks including JPMorgan Chase & Co (JPM.N) and PNC Financial Services Group (PNC.N) are vying to buy First Republic after its takeover by the government, which could come as soon as this weekend, the newspaper reported. Wall Street Journal on Sunday. 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 bank falls into receivership, it will be the third US bank to fail since March. The First Republic said this week that its deposits fell by more than $100 billion in the first quarter.
The bank’s shares closed down 43%, exacerbating a rout for shares that wiped 75% of their value this week. The stock lost more than half its value on Friday and touched a record low of $2.99.
At its lowest levels, the bank’s market capitalization was nearly $557 million, a far cry from its valuation peak of more than $40 billion in November 2021.
Shares of some other regional banks also fell, with PacWest Bancorp (PACW.O) down 2% after the bell, while Western Alliance (WAL.N) down 0.7%.
Reuters reported earlier on Friday that the Federal Deposit Insurance Corporation, the Treasury Department and the Federal Reserve were among government agencies that arranged meetings with financial firms about the bank’s lifeline.
News of the impending move to put First Republic into receivership comes on the same day that the Federal Reserve and the FDIC detailed supervisory lapses before filings caused Silicon Valley and Signature Bank to collapse in March.
The Fed’s assessment of the shortcomings in identifying problems and pushing for reforms at the SVB in Santa Clara, Calif., came with promises of tougher oversight and tougher rules for banks.
The big banks had earlier orchestrated First Republic’s lifeline, putting $30 billion in joint deposits from US heavyweights, including Bank of America Corp. (BAC.N), Citigroup Inc. (CN), JPMorgan, and Wells Fargo & Co (WFC). n).
But the First Republic has struggled to get support from big banks or private equity firms in its proposed move to create a so-called “bad bank” or sell off assets such as securities and mortgage book.
The large banks that deposited either declined to comment or were not available for comment.
First Republic, which reported first-quarter earnings on Monday, had said it plans to trim its balance sheet and cut expenses by cutting executive compensation, cutting back office space and laying off 20% to 25% of employees in the second quarter.
The First Republic case is an “evolving situation,” said John Garnera, senior corporate analyst at RBC Bluebay Asset Management.
“The rest of the regional banking system feels like it’s in a different place than where the FRC is,” he said.
Additional reporting by Medha Singh in Bengaluru; Edited by Soumyadib Chakrabarti
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