First Republic’s Fate Tied To Desperate FDIC Auction

Battered First Republic Bank woke up as someone else’s problem. This comes after a fast-tracked, frenzied auction by an admittedly understaffed Federal Deposit Insurance Corporation to get the SF-based lender merged with a bigger bank. How was your Sunday?

Fall of The First Republic

First Republic managed to survive the chaotic bank runs of March thanks to a $30 billion equity infusion from the largest US banks, but that didn’t make its customers feel any safer. When it disclosed results for the first quarter last week, investors learned that First Republic customers had pulled $72 billion in deposits in the period, a more than 40% drop, and the bank’s stock is down more than 97% in 2023.

Rumors swirled going into the weekend that First Republic would end up being seized by the FDIC, as Silicon Valley Bank and Signature Bank had in March. So the FDIC scrambled to find a buyer for First Republic’s remaining assets, turning once again to Wall Street’s big boys. According to multiple reports, PNC Financial and JPMorgan Chase are among the final bidders in an express auction being conducted by the FDIC, meaning regulators might end up choosing between a bank that declined to rescue SVB, and one that would need a waiver to make an acquisition:

• In the aftermath of the 2008 subprime mortgage crisis, JPMorgan acquired both Washington Mutual and Bear Stearns. As the only major bank CEO still standing, Jamie Dimon — who led the push to get First Republic the $30 equity life preserver — has not been shy about his regret for being roped into those deals, and he has the perfect out in this case: The Riegle-Neal Act of 1994 bars any bank merger that results in one controlling more that 10% of the US’ total insured deposits. JPMorgan already controls more than 16% and would need a waiver to take on First Republic.

That said, Dimon might be looking at acquiring First Republic as a defensive maneuver. Dimon’s chief investment officer, Bob Michele, told Bloomberg just last week that US banks lucky enough to have survived March are not out of the woods. “I think it’s somewhat naive to say that this is just limited to First Republic,” he said.

We just can’t with this: Even if the FDIC wanted to take on First Republic’s problems right now, it doesn’t seem to have the manpower to deal with them. The agency charged with safeguarding banks admitted on Friday that it failed to see Signature Bank’s looming meltdown due to widespread job “vacancies and the adequacy of the skillsets of the Dedicated Team” in the New York regional office. We’re picturing empty cubicles and lots of ringing phones this morning.