JPMorgan Chase & Co. and PNC Financial Services Group are bidding to by First Republic Bank after it's expected to be taken over by the government, which is trying to save the bank so that there is no ‘domino reaction’ throughout the financial system.
First Republic Bank is one of the backbone financial institutions of the USA, which ranks 14th in the list of the largest banks in the country. Millions of Americans use its services. If the bank collapses, these millions will lose one's money.
The major banks are expected to place bids on First Republic Bank after it is ‘taken over by the U.S. Federal Deposit Insurance Corporation (FDIC) and sold’, sources told the Wall Street Journal.
Citing a person familiar with the situation, Reuters reported that the FDIC has decided that the regional bank's position has deteriorated, leaving no more time to go after a private sector rescue.
The outlet reported earlier in the day that officials from the FDIC, the Treasury Department and the Federal Reserve were coordinating talks to rescue the bank after private-sector efforts failed to yield a deal.
First Republic's shares have been in free-fall since April, 24 after the closing bell following the bank's revelation that its deposits dropped 40% in the first quarter as panicked customers pulled their funds amid fears of a growing crisis after Silicon Valley Bank was seized by regulators last month.
The San Francisco-based lender would be the third American bank to fail since March if it enters receivership, after the failure of Silicon Valley Bank and Signature Bank. Panicky First Republic clients withdrew almost $100 billion in deposits in a few days of the SVB catastrophe.
Since then, the stock has lost around 97% of its value.
The largest banks in the country, including JPMorgan and PNC, attempted to support the First Republic bank with a $30 billion deposit, but it was insufficient.
First Republic presented a dreadful quarterly profits report that included fresh information on the severity of the harm caused by the deposit run.
The bank claimed that costly loans from the Federal Reserve and Federal Home Loan Bank were used to plug the hole left by fleeing depositors. That left the lender facing a future scenario in which it might have to pay more in liabilities than it would have made in assets.
The bank's stocks dropped roughly 50% in one day. It fell further during the week, closing at $3.51 a share on April 28, down from $115 on March 8 when SVB announced a loss that alarmed investors.
Regulators and bankers anticipated that once the government intervened to compensate uninsured depositors at SVB and Signature, ‘the panic had subsided.’
…So, they are waiting for The Panic. WSJ estimates that about 200 banks may fail in the near future.
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