Many of the institutions involved in rescuing beleaguered First Republic Bank are also said to be eyeing a potential purchase of the San Francisco-based institution, according to Fox Business.
Among those said to be interested are Morgan Stanley and PNC Bank — many of the same firms that provided the $30 billion bailout money to prevent First Republic from going after Silicon Valley Bank (SVB), Signature Bank and Silvergate into bankruptcy, according to people with direct knowledge of the matter.
THE FIRST REPUBLIC RECEIVES A 30 BILLION BAILOUT. dollars FROM THE LARGEST US BANKS
Representatives for Morgan Stanley and PNC declined to comment. Press officials from the First Republic had no immediate comment.
It is uncertain whether any deal will be struck, these people say. Also unclear is whether any deal would pass regulatory scrutiny from the Biden administration, where antitrust authorities have been wary of big mergers.
Bank regulators have expressed concern that the nation’s biggest banks are getting even bigger. The nation’s top 10 banks control the vast majority of assets and customer deposits in the financial system.
But people with knowledge of regulators’ thinking say they are increasingly worried about the stability of mid-tier banks like First Republic after the triple bust of other similarly sized institutions Silvergate, Signature and SVB.
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Bank regulators believe that mid-sized banks have among the least diversified asset bases and are susceptible to losses associated with a higher interest rate environment. They are also vulnerable to bank defaults or depositors pulling money out of accounts at the first moment of trouble, as has been the experience of SVB, Signature and more recently First Republic.
People with knowledge of the matter say bank regulators are increasingly comparing the current state of the banking system to the savings and loan crisis of the late 1980s, when so-called savings invested in risky assets collapsed en masse.
Because of growing fears about that systemic risk, some on Wall Street believe Biden’s banking regulators might approve a merger between a major bank and First Republic, which has $200 billion in assets. By comparison, Morgan Stanley has nearly $1.2 trillion in assets.
|PNC||THE PNC FINANCIAL SERVICES GROUP INC.||130.04||+4.97||+3.97%|
“In this uncertain environment, the big players with strong funding will be buyers and the weaker ones will be bought,” said Chris Whalen, President of Whalen Global Advisors in New York. “First Republic is an attractive acquisition for a large advisory company and regulators will probably approve.”
Sources with knowledge of the potential acquisition say a deal could come within days, but it’s not guaranteed and the situation is fluid, so it’s possible First Republic will remain independent. It is unclear whether First Republic is actively looking for a buyer or whether major banks have already approached its management.
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Sources with knowledge of the matter say JP Morgan, Morgan Stanley, PNC and others have privately analyzed First Republic’s deposit base and loan portfolio in preparation for a potential bid.
Fox Business was the first to report that banks were preparing to provide financing to First Republic to overcome what it described as a “liquidity crunch.” First Republic was profitable last year, but in 2023 its operations have come under pressure from the Fed’s rate hikes.
This pressure became more acute after the collapse of the SVB. First Republic has suffered from massive withdrawals, its bonds were recently downgraded to junk status, and its stock is down more than 70% in the past week.
Fears of a collapse prompted 11 of the nation’s largest banks to roll out a bailout plan in which each pledged to put $30 billion worth of deposits into the bank. Fox Business first reported the bailout talks Wednesday on Claman’s Countdown. News of the bailout sent First Republic shares up nearly 10% on Thursday.
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But the bailout may not be the last word on the bank’s future. Executives who worked on the deal say discussions about a possible purchase of First Republic took place simultaneously among the same institutions that gave the money.
“Everyone is looking to buy First Republic,” said one executive directly involved in the bailout. “It is a large bank suffering from a liquidity crisis.”