FDIC Seeks Final Bids for First Republic Bank Amid Urgent Rescue Talks

The FDIC has called upon banks such as JPMorgan Chase & Co. and PNC Financial Services Group Inc. to put forth their final offers for First Republic Bank by the end of the week. This development comes in the wake of the FDIC's assessment of preliminary interest, as reported by unnamed sources with knowledge of the situation.

The initiation of the bidding process by regulators, following weeks of fruitless discussions between banks and their consultants, is intended to result in a more streamlined sale of First Republic, in contrast to the protracted auctions that occurred after the collapses of Silicon Valley Bank and Signature Bank last month.

The FDIC has approached banks for expressions of interest, which include suggested prices and the anticipated expenses for the agency's deposit insurance fund. Based on submissions received on Friday, the regulator has invited a minimum of two companies to advance to the subsequent stage of the bidding process. JPMorgan, PNC, and the FDIC have not yet provided comments on the matter.

As First Republic's stock experienced a significant decline of 97% this year, authorities are intervening in an attempt to provide a solution. Some stronger firms have been waiting for the government to offer assistance or put the bank in receivership, a resolution they view as cleaner, potentially leading to the sale of the bank or its parts at attractive prices. However, the FDIC would prefer to avoid receivership due to the potential multibillion-dollar impact on its deposit insurance fund, which is already planning a special assessment on the industry to cover the costs of Silicon Valley Bank and Signature Bank's failures last month.

U.S. officials have been holding urgent talks to rescue First Republic Bank, as private-sector efforts led by the bank's advisors have not yet reached a deal. The FDIC, the Treasury Department, and the Federal Reserve are among the government bodies that have recently begun coordinating meetings with financial companies to devise a solution for the troubled lender. Although the government has been in contact with First Republic and its advisors for weeks, its new involvement is helping bring more parties, including banks and private equity firms, to the negotiating table.

It remains unclear whether the U.S. government is considering participating in a private-sector rescue of First Republic. However, the government's engagement has given First Republic executives confidence as they work to find a deal that would prevent a takeover by U.S. regulators. U.S. officials view a private-sector deal as preferable to First Republic falling into FDIC receivership, according to two sources familiar with the situation.

Many of the proposed options, including selling assets or creating a "bad bank" to isolate underwater assets, have so far failed to yield a deal. Any solution 

would need to account for the losses that First Republic or a potential acquirer would assume in the event of a transaction. These losses would stem from the bank's loan book and fixed-income portfolio, whose low-yielding assets would be marked down to accommodate a rise in interest rates.

The most promising deal structure for rescuing First Republic involves a special purpose vehicle that would separate some of the lender's assets for other banks to purchase. Banks have been hesitant to acquire these assets at a market discount, and First Republic hopes that U.S. officials can persuade them to participate or provide some form of government support for a deal, according to one source.

Recent reports by CNBC indicate that government talks are now centered on preparing to place First Republic into FDIC receivership, with such an outcome appearing increasingly likely. In receivership, an FDIC fund would cover any losses incurred by taking over First Republic's underwater assets. The FDIC would then recover those losses from all banks contributing to its insurance scheme, without burdening U.S. taxpayers.

As the discussions are confidential, the sources have requested anonymity. In a statement, First Republic said, "We are engaged in discussions with multiple parties about our strategic options while continuing to serve our clients." The Treasury Department, Federal Reserve, and FDIC have declined to comment on the matter.

First Republic's shares traded down 30% to $4.31 on Friday. Wall Street banks have been working to find a solution for First Republic since 11 of the largest U.S. lenders deposited $30 billion at the bank on March 16 to address a regional banking crisis that led to the failure of Silicon Valley Bank and Signature Bank.

Discussions for a deal gained urgency this week when First Republic disclosed on Monday that it had experienced deposit outflows of over $100 billion in the first quarter. Although the bank stated that its deposits had stabilized, it revealed that it was losing money because it had to replace the withdrawn deposits with interest-bearing funding from the Federal Reserve.

First Republic is considering significant hits, potentially resulting in a total loss for shareholders, as part of the options that would prevent U.S. regulators from taking over the bank. The bank's shares have lost 95% of their value since the regional banking crisis began on March 8.

The financial turmoil experienced by First Republic Bank, the nation's 14th-largest lender, has raised questions about the banking industry's stability. While the financial system remains under stress, experts believe that the current unrest is unlikely to pose a systemic risk, as the damage is contained within a relatively narrow group of banks vulnerable to high interest rates and depositor panic.