First Republic Bank was headed for a potential sale following an institutional bailout

Many of the institutions are involved in rescuing the oppressed Bank of the First Republic are also said to be aiming for a possible purchase of the San Francisco-based institution, Fox Business has learned.

Interested parties include Morgan Stanley and PNC Bank — several of the same firms that provided the $30 billion bailout to keep First Republic from giving up Silicon Valley Bank (SVB), Signature Bank and Silvergate in the bankruptcy to follow direct knowledge of the matter.

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Morgan Stanley and PNC spokesmen declined to comment. First Republic press representatives had no immediate comment.

It’s uncertain if a deal will materialize, these people say. It’s also unclear whether a deal would pass regulatory scrutiny by the Biden administration, where antitrust officials are suspicious of large mergers.

Banking regulators have expressed concern that the country’s largest banks are getting bigger. The country’s 10 largest banks control the vast majority of assets and customer deposits in the financial system.

But people who know the mindset of regulators say they’re also growing concerned about the stability of mid-tier banks like First Republic after other similarly sized institutions like Silvergate, Signature and SVB have triple imploded.

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Banking regulators believe that mid-sized banks have one of the least diversified asset bases and are vulnerable to losses associated with a higher interest rate environment. They are also prone to bank runs, or depositors withdrawing money from accounts at the first hint of trouble, like the experience of SVB, Signature and most recently First Republic.

People familiar with the matter say banking regulators are increasingly comparing the current state of the banking system to the savings and credit crisis of the late 1980s, when so-called second-hand companies that invested heavily in risky assets collapsed en masse.

With growing fears of this systemic risk, some on Wall Street believe Biden’s banking regulators could approve a merger between a major bank and $200 billion in assets First Republic. For comparison, Morgan Stanley has nearly $1.2 trillion in assets.

The story goes on

“In this uncertain environment, big players with solid funding will be buyers, and the weakest will be bought,” said Chris Whalen, chairman of Whalen Global Advisors in New York, likely to approve.”

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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, so it’s possible First Republic could remain independent. It’s unclear if First Republic is actively looking for a buyer or if the big banks have already approached management.

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Sources with knowledge of the matter say that JP Morgan, Morgan Stanley, PNC and others have privately analyzed the First Republic’s deposit base and loan portfolio in preparation for a possible bid.

Fox Business was first to report that the banks were preparing to provide First Republic with funding to get through what is was described as a “liquidity crisis”. First Republic was profitable last year, but in 2023 the business was hit by Fed rate hikes.

This pressure increased after the collapse of the SVB. First Republic has suffered massive pullbacks, its bonds were recently downgraded to junk status, and its shares are down more than 70% over the past week.

Fear of collapse prompted 11 of the country’s largest banks to develop a bailout plan, pledging to put $30 billion worth of deposits into the bank. Fox Business was the first to report talks about the bailout in Claman Countdown on Wednesday. News of the bailout sent First Republic shares up 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 a possible purchase of First Republic took place simultaneously between the same institutions that provided the money.

“Everyone is thinking about buying First Republic,” said a CEO directly involved in the bailout. “It’s a great bank suffering from a liquidity crisis.”