Many of the institutions involved in the bailout of the beleaguered First Republic Bank are also said to be looking to make a possible purchase of the San-Francisco-based institution, Fox Business has learned.
Those said to be interested include Morgan Stanley and PNC Bank — several of the same firms that put up the $30 billion in bailout money to keep First Republic from following Silicon Valley Bank (SVB), Signature Bank and Silvergate into insolvency, according to people with direct knowledge of the matter.
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Spokespersons for Morgan Stanley and PNC declined comment. Press officials from First Republic had no immediate comment.
It’s uncertain if any deal will happen, these people say. Also unclear is whether any deal would pass regulatory scrutiny from the Biden Administration where antitrust officials have been wary of large mergers.
Banking regulators have expressed concern about the nation’s biggest banks 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’re also growing increasingly concerned about the stability of mid-tier banks like First Republic following the triple implosion of other similarly sized institutions Silvergate, Signature and SVB.
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Banking regulators believe mid-sized banks have among the least diversified asset bases and are susceptible to losses tied to a higher interest-rate environment. They’re also vulnerable to bank runs or depositors yanking money from accounts at the first whiff of trouble, as was the experience of SVB, Signature and most recently First Republic.
People with knowledge of the matter say banking regulators increasingly compare the current state of the banking system to the savings and loans crisis of the late 1980s, when so-called thrifts heavily invested in risky assets collapsed en masse.
Because of growing fears of this systemic risk, some on Wall Street believe the Biden banking regulators might approve a merger between a big bank and First Republic, which has $200 billion in assets. By comparison, Morgan Stanley has nearly $1.2 trillion in assets.
“In this uncertain environment, big players who have solid funding will be buyers and the weakest will get bought,” said Chris Whalen, Chairman Whalen Global Advisors in New York.” First Republic is an attractive acquisition for a large advisory firm and regulators would likely approve it.”
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Sources with knowledge of the potential buyout say a deal could come within days, but it’s not guaranteed, and the situation is fluid thus it is possible First Republic could remain independent. It’s unclear if First Republic is actively seeking a buyer or if the big 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 the First Republic’s deposit base and loan portfolio in preparation for a potential bid.
Fox Business was first to report that banks were preparing to provide First Republic with financing to make it through what’s been described as a “liquidity crisis.” First Republic was profitable last year, but in 2023 its business has been under pressure from Fed rate hikes.
That pressure has grown more acute after the SVB collapse. First Republic suffered from massive withdraws, its bonds were recently downgraded to junk status and its stock has fallen more than 70% in the past week.
Fear of a collapse spurred 11 of the nation’s biggest banks to develop a rescue plan where they each committed to putting in $30 billion worth of deposits into the bank. Fox Business was first to report talks of the bailout Wednesday on the Claman Countdown. News of the bailout caused First Republic’s stock to jump nearly 10 percent on Thursday.
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But the bailout may not be the final word on the bank’s future. Executives who worked on the deal say discussions about possible purchase of First Republic occurred simultaneously among those same institutions putting up the money.
“Everyone is looking at buying First Republic,” said one CEO directly involved in the bailout. “It’s a great bank suffering from a liquidity crisis.”