The final bids came in from investors to take over the struggling lender, First Republic Bank. The concerned regulators in the US were working late into the night to meet the midday deadline set for the bidding process.
According to sources JPMorgan Chase, PNC Financial Services Group Inc and Citizens Financial Group Inc submitted their bids to the Federal Deposit Insurance Corp. in an effort to take over the ailing bank. Other banks like America Corp. and US Bancorp decided against bidding. Bidders were invited by the regulators on the basis of their expertise in the sector.
Regulators went through the proposals sent by the banks and are preparing for the last leg of the bidding process with follow-up questions. If the regulators cannot close the bid, they will have no option but to take over the bank themselves.
The regulators and banks alike wanted to avoid drawn-out auctions witnessed after the failure of the Silicon Valley Bank and Signature Bank last month. All the parties involved wanted a cleaner and simpler bidding process.
Some of the advisers involved in the process speculate if the auction was merely a prelude to an open-bank solution. As per this solution, the regulators could avoid declaring the bank a failure formally and seize control of the bank.
The bank has lost 97% of its stock value and is currently worth $650 million. This has made the takeover of the bank a lot more feasible for the bidders.
The Debt & Banking Crisis
The First Republic Bank has a long balance sheet of low-interest loans that have become unfeasible with the Federal interest rate hike. There are also massive loans that the bank lent to its customers that remain unaccounted for right now. After looking at this mountain of bad debt that the bank had acquired, some of its biggest investors cashed out last month. This led to the bank’s collapse.
The regulators in response have opened up a channel for emergency lending to the bank in an effort to keep the institution from collapsing.
Steps to contain the banking crisis
As the crisis in The First Republic Bank unfolded, 11 big banks stepped in and deposited $30 billion in the bank in March. The FDIC was hoping these banks will be prepared to take over the bank’s assets at above market price.
However, banks are holding out. They want the bank to go to receivership whereby they can pick the bank's assets at below market price. This solution does not work for the FDIC as it will end up paying billions of dollars from its fund.
