US regulator asks banks including JPMorgan and PNC to bid for First Republic

The US government has asked JPMorgan, PNC and several other financial groups, including a handful of non-bank investment firms, to bid for all or part of First Republic, as US regulators try to determine how much it would cost to take over the embattled California lender.

Over the past 24 hours, it has become clear to both First Republic and the government that stabilising the bank will almost certainly require the Federal Deposit Insurance Corporation to take it over, four people briefed on the situation said.

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

On Wednesday, the FDIC asked roughly a dozen banks to tell them what they would be willing to pay for First Republic’s deposits and assets, and what level of losses the FDIC would have to absorb to get the deal done, 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. The potential bidders have been given digital access to a data room with extensive information on First Republic’s loans and other assets, according to two sources familiar with the process. A number of investment firms have also been given access to the data and encouraged to provide bids.

Banks and others have been told that bids are welcomed that would include First Republic being taken into receivership, and that a winning bid is likely to include some assistance from the FDIC’s insurance fund. The bidders have been given until Sunday to submit binding bids.

Guggenheim is advising the FDIC on the process, according to people familiar with the matter.

JPMorgan, which led an earlier effort to stabilise First Republic by convening a group of 11 banks to put $30bn in deposits into the lender, is now preparing a bid for a post-resolution deal, three people briefed on the situation said. JPMorgan and PNC declined to comment.

It is not clear how many other banks will bid, or whether the FDIC will find any of the bids acceptable. When SVB failed, other lenders initially declined to bid, and the FDIC set up a bridge bank to give its customers access to their money.

The FDIC said: “We cannot comment on or confirm reports that we are bidding an open and operating bank.”

If San Francisco-based First Republic is taken over by the FDIC, it would rank among the biggest bank failures in US history, alongside Washington Mutual in 2008 and SVB.

First Republic’s business model of using low-cost deposits to fund cheap mortgages has been squeezed by rising interest rates. It revealed on Monday that customers have pulled out more than $100bn in deposits as concerns rose about regional banks in the wake of SVB’s collapse.

When a US bank fails, the FDIC solicits bids from other lenders for its deposits and assets to determine which will best protect customers and minimise the cost to the government’s deposit insurance fund. The FDIC is funded by a levy on banks.

The goal is to find a buyer before the FDIC actually takes over. But that does not always happen. In SVB’s case, the FDIC used a so-called “systemic risk exemption” to guarantee all deposits, including those too large to be covered by deposit insurance. It is not clear whether it would do the same for First Republic’s large depositors.

The Wall Street Journal first reported that JPM and PNC had been asked to bid.