April 28 (Reuters) – The U.S. Federal Deposit Insurance Corporation (FDIC) is preparing to acquire First Republic Bank ( FRCN. ) soon, a person familiar with the matter said on Friday, sending shares of the lender down nearly 50%. In extended trading.
The U.S. banking regulator has decided that the troubled regional lender’s condition has deteriorated and there is not much time left to pursue a bailout by the private sector, the source told Reuters on condition of anonymity because the matter is confidential.
Major banks including JPMorgan Chase & Co ( JPM.N ) and PNC Financial Services Group ( PNC.N ) are vying to buy First Republic following a government takeover that could come as soon as this week, the Wall Street Journal reported. Friday.
PNC, JPMorgan and First Republic declined to comment on the report, while the FDIC did not immediately respond to a request for comment.
It would be the third US bank to collapse since March when the San Francisco-based lender fell under receivership. First Republic said this week that its deposits fell by more than $100 billion in the first quarter.
Shares of the bank plunged 43%, worsening a stock rout that wiped out 75% of its value this week. The stock lost more than half of its value on Friday to hit a record low of $2.99.
At the low, the bank’s market capitalization was nearly $557 million, a far cry from its peak of $40 billion in November 2021.
Shares of some other regional banks also fell, with Pacwest Bancorp ( PACW.O ) down 2% after the bell and Western Alliance ( WAL.N ) down 0.7%.
Reuters reported earlier on Friday that the FDIC, the Treasury Department and the Federal Reserve were among the government agencies that had arranged meetings with financial institutions about a lifeline for the bank.
News of the imminent move to place First Republic into receivership comes on the same day that the Federal Reserve and the FDIC detailed their oversight deficiencies before the deposit runs that led to the collapse of Silicon Valley Bank and Signature Bank in March.
The central bank’s assessment of its inadequacies in detecting problems and pushing for fixes at Santa Clara, California-based SVB came with promises of tighter supervision and tighter rules for banks.
Bank of America Corp. (BAC.N), Citigroup Inc. ( CN ), big banks arranged an earlier lifeline for the First Republic by pooling $30 billion in deposits from US banking heavyweights including JPMorgan and Wells Fargo & Co ( WFC ). N).
But First Republic struggled to get the backing of big banks or private equity firms, proposing to create what it called a “bad bank” or sell assets such as bonds and a mortgage book.
The major banks that made the deposit either declined to comment or were not available for comment.
First Republic, which reported its first-quarter earnings on Monday, said it plans to shrink its balance sheet, cut costs by cutting executive compensation and lay off 20% to 25% of its employees in the second quarter.
John Guernera, senior institutional analyst at RBC BluePay Asset Management, said First Republic’s case was an “evolving situation.”
“The rest of the regional banking system feels like it’s in a different place than where the FRC is,” he said.
Medha Singh reports in Bangalore; Editing by Saumyadeb Chakraborty
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