April 28 (Reuters) – The US Federal Deposit Insurance Corporation (FDIC) is preparing to place First Republic Bank ( FRC.N ) under receivership, a person familiar with the matter said on Friday, sending shares of lending nearly 50% to the extended trade.
The US banking regulator has decided that the troubled regional lender’s position has deteriorated and there is no time to pursue a rescue through the private sector, the source told Reuters, asking not to be identified because the matter is confidential.
Big banks including JPMorgan Chase & Co ( JPM.N ) and PNC Financial Services Group ( PNC.N ) are vying to buy First Republic following its government takeover, which could come as soon as the end of week, the Wall Street Journal reported on 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 lender falls into receivership, it would be the third US bank to collapse since March. 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 the stock’s rout that wiped 75% of its value this week. The stock lost more than half its value on Friday and hit a record low of $2.99.
At its lowest, the bank had a market capitalization of nearly $557 million, far from its peak of more than $40 billion in Nov. 2021.
Shares of several other regional banks also fell, with PacWest Bancorp ( PACW.O ) down 2% after the bell while Western Alliance ( WAL.N ) fell 0.7%.
The FDIC, the Treasury Department and the Federal Reserve are among the government bodies that have orchestrated meetings with financial firms about a lifeline for the bank, Reuters reported on Friday.
News of the imminent move to put First Republic into receivership came on the same day the Federal Reserve and FDIC detailed their supervisory lapses before the deposit that caused the collapse of Silicon Valley Bank and Signature Bank in March.
The Fed’s assessment of its shortcomings in identifying problems and pushing for fixes at Santa Clara, California-based SVB comes with promises for tighter oversight and tougher rules for banks.
The big banks orchestrated an earlier lifeline for First Republic, putting up $30 billion in combined deposits from US banking heavyweights, including Bank of America Corp. (BAC.N), Citigroup Inc. (CN), JPMorgan and Wells Fargo & Co (WFC. N).
But First Republic has struggled to find 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 books.
The big banks that placed the deposits either declined to comment or were unavailable for comment.
First Republic, which reported its first-quarter earnings on Monday, said it plans to shrink its balance sheet and cut costs by cutting executive compensation, reducing back office space and laying off 20% up to 25% of employees in the second quarter.
John Guarnera, senior corporate analyst at RBC Bluebay Asset Management, said the First Republic case is an “evolving situation.”
“The rest of the banking system in the region seems to be in a different place than where the FRC is,” he said.
Reporting by Medha Singh in Bengaluru; Editing by Saumyadeb Chakrabarty
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