First Republic resisting insolvency: FDIC takeover likely

As mentioned earlier (), the US regional banking system is facing significant headwinds on account of rise in interest rates at an unprecedented pace (1832%) in last 13 months. The First Republic bank has been on the radar since the collapse of SVB. The equity value of the FRC has plunged around 85% in last 5 days and the bank officials are trying to come up with a financial strategy/plan which could involve transacting the FRC’s long term assets above current market price. Lazard and McKinsey are working alongside JP Morgan to try to come with with more realistic solutions to save the troubled lender from falling into the hands of FDIC.

Previously, JPMorgan Chase, Citigroup, Bank of America, Wells Fargo, Goldman Sachs and Morgan Stanley (total 11 major US banks) have injected $30 billion in deposits into the bank. Bank of America, Wells Fargo, Citigroup and JPMorgan Chase¬†contributed $5 billion per head, while Goldman Sachs and Morgan Stanley deposited around $2.5 billion. However that was not sufficient to calm the tensions around the bank’s financial health (majorly short term asset-liability mismatch on the balance sheet) and around $102.7 billion in deposit flight has taken place.

In case the ongoing talks and strategic planning did not materialize, First Republic will be third US bank to go down after SVB and Signature. The shares of almost all US regional banks have been hit hard, as investors are worried that other lenders could also collapse even though a system-wide contagion has been prevented, so far.

Update (1st May,2023 Monday) :
Majority of FRC assests and desposits have been acquired by JP Morgan Chase & Co. after receiving clearance to the submitted bid by Federal Deposit Insurance Corporation (FDIC). The lender held around assets of $229.1 billion and total deposits of approx $103.9 billion.

Last updated on May 1st, 2023 at 02:23 pm