The U.S. Federal Deposit Insurance Corporation (FDIC) is reportedly preparing to put First Republic Bank (NYSE: FRC) into receivership, causing the lender's shares to drop by nearly 50% in extended trading. The decision comes as the bank's position has worsened, leaving no more time for a private sector rescue.
Government Seizure Expected This Weekend
JPMorgan Chase & Co (NYSE: JPM) and PNC Financial Services Group (NYSE: PNC) are considering purchasing First Republic following its government seizure, which may occur early this weekend. Neither PNC, JPMorgan, nor the First Republic has commented on the matter, and the FDIC has not yet responded to requests for comment.
First Republic Bank's Deposits Drop by $100 Billion
If First Republic Bank enters receivership, it will mark the third U.S. bank collapse since March. This week, the San Francisco-based lender reported a decline in deposits by more than $100 billion during the first quarter. The bank's shares closed down 43%, reaching a record low of $2.99.
Supervisory Lapses Revealed in Recent Bank Collapses
Government bodies such as the FDIC, Treasury Department, and Federal Reserve held meetings with financial companies to discuss a lifeline for First Republic Bank. This comes as the Federal Reserve and FDIC revealed their supervisory shortcomings that led to the collapses of Silicon Valley Bank and Signature Bank (OTC: SBNY) in March.
Large Banks Decline to Comment on First Republic Situation
First Republic Bank experienced difficulties securing support from larger banks or private equity firms to create a "bad bank" or sell assets like securities and mortgage books. The banks that placed deposits, including Bank of America Corp (NYSE: BAC), Citigroup Inc (NYSE: C), JPMorgan, and Wells Fargo (NYSE: WFC) & Co, have either declined to comment or were unavailable.
First Republic Bank Plans Expense Reduction
In response to its financial struggles, First Republic Bank announced plans to reduce its balance sheet and cut expenses. Measures include reducing executive compensation, downsizing office space, and laying off 20% to 25% of employees in the second quarter.