NEW YORK, April 30 (Reuters) – PNC Financial Services Group ( PNC.N ), JPMorgan Chase & Co ( JPM.N ) and Citizens Financial Group Inc ( CFG.N ) are among the banks submitting final bids for of First Republic Bank ( FRC.N ) on Sunday in an auction run by U.S. regulators, sources familiar with the matter said.
The Federal Deposit Insurance Corp is expected to announce a deal on Sunday night, with the regulator likely to say at the same time it has acquired the lender, three sources told Reuters.
While the process dragged on Sunday night, a source familiar with the situation said they were not informed of a time when a decision or announcement could be made.
U.S. regulators are trying to secure a sale of First Republic over the weekend, with nearly half a dozen banks bidding, sources said Saturday, in what is likely to be the third major US banks will fail in two months. Guggenheim Securities is advising the FDIC, two sources familiar with the matter said Saturday.
The FDIC was not immediately available for comment. Guggenheim, FRC and the banks declined to comment.
A deal for First Republic comes less than two months after Silicon Valley Bank and Signature Bank failed amid a flight of deposits from US lenders, forcing the Federal Reserve to act with measures of emergency to stabilize the markets.
While the markets have since calmed down, a deal for the First Republic will be closely watched for the amount of support the government would have to provide.
The FDIC officially insures deposits up to $250,000. But fearing further bank runs, regulators took the unusual step of insuring all deposits at Silicon Valley Bank and Signature.
It remains to be seen whether regulators in the First Republic should do the same. They require the approval of the Treasury secretary, the president and a super-majority of the boards of the Federal Reserve and the FDIC.
In an attempt to find a buyer before closing the bank, the FDIC turned to some of the largest US lenders. Big banks are encouraged to bid for FRC assets, one of the sources said.
JPMorgan has more than 10% of the country’s total bank deposits. Federal law prevents a large bank from an acquisition that puts it above a threshold of 10% of total deposits, but that can be waived by banking regulators once it buys a failed one bank, according to the text of the 1994 law and interpretation of the document by a source who is an expert on bank failures.
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First Republic was founded in 1985 by James “Jim” Herbert, son of an Ohio community banker. Merrill Lynch acquired the bank in 2007, but relisted it on the stock market in 2010 after being sold to Merrill’s new owner, Bank of America Corp ( BAC.N ), following the 2008 financial crisis.
For years, First Republic has attracted high-net-worth customers with preferential rates on mortgages and loans. This strategy makes it weaker than regional lenders with less wealthy customers. The bank has a high level of unsecured deposits, accounting for 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, efforts proved futile, in part because buyers balked at the prospect of had to realize substantial loan book losses.
A source familiar with the situation told Reuters on Friday that the FDIC has decided that the lender’s position has deteriorated and there is no time to pursue a rescue through the private sector.
As of Friday, First Republic’s market value hit a low of $557 million, down from a peak of $40 billion in November 2021.
Shares of other regional banks also fell on Friday, as it became clear that First Republic was headed for an FDIC receivership, with PacWest Bancorp ( PACW.O ) down 2% after the bell. and Western Alliance (WAL.N) down 0.7%.
Reporting by Chris Prentice and Nupur Anand, writing by Megan Davies; Editing by Paritosh Bansal
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