Whether or not JPMorgan Chase & Co., the likely high bidder in this weekend’s emergency auction for First Republic Bank, will make the unusual exemption to the rule prohibiting banks with more than 10% of US deposits from buying competitors hangs in the balance.
According to those in the know, the Federal Deposit Insurance Corp. may seek approval of JPMorgan’s offer if the Office of the Comptroller of the Currency decides the deal warrants review. One of JPMorgan Chase’s main overseers is the OCC.
In the wake of the financial crisis of 2008, the United States instituted regulations meant to prevent banks from acquiring too much market share. However, the rules do allow for some exceptions, such as the taking over of failing or failing banks.
When competing against the government’s attempt to sell the First Republic, the nation’s largest bank, JPMorgan, has what CEO Jamie Dimon calls a “fortress balance sheet.” The FDIC has spent the day of Sunday considering proposals after the deadline for submissions expired, and they are anticipated to make a choice and announce it later that evening.
However, Money Isn’t The Only Thing Standing In The Way Of A Deal
Since only a handful of large banks hold more than 10% of total deposits in the United States, JP Morgan is prohibited from acquiring another deposit-taking institution by federal law.
If the largest bank in the country wanted to grow, it would want special treatment from the government. The FDIC has not yet decided whether or not to place First Republic into receivership, according to sources as of Friday evening.
California’s banking regulator, which would be responsible for making the final call on whether or not the San Francisco-based lender has failed, did not return calls seeking comment.
First Republic has a substantial portfolio of low-interest loans, including many jumbo mortgages to affluent borrowers. As interest rates have risen, the value of such debts has decreased, putting the lender at risk if they are liquidated.
Wealthy households and corporations withdrew funds from banks with such weaknesses in their balance sheets during last month’s regional banking crisis. To help financial institutions meet unexpected cash needs, the Federal Reserve created an emergency loan program.
First Republic Bank Will Be Saved By JPMorgan
JPMorgan Chase & Co (JPM.N), PNC Financial Services Group (PNC.N), and Citizens Financial Group Inc (CFG.N) were reportedly among the highest bidders. The FDIC is likely to soon announce the acquisition and seizure of the failing bank.
According to Reuters’s reporting, the U.S. regulator tried to make changes to the takeover offer so that it would meet certain criteria. Lender-owned assets were included in this category.
Meanwhile, neither the FDIC nor the FRC have issued a statement on the matter. Although Silicon Valley Bank and Signature Bank both failed in a similar fashion, the timing of the First Republic Bank Buyout deal couldn’t be better.
According to the data compiled, the share price of the lender (NYSE: FRC) decreased by 75% during the previous week. But over the past six months, its value has dropped by 97%. The current price is $3.51.
There has been little interest in a joint investment from the eleven banks who put $30 billion into First Republic in March to provide the company more time to find a private sector solution.
There have been recent suggestions that a group of larger banks buy First Republic’s assets for more than they are now worth. However, no consensus was reached.
Some stronger lenders, however, have been waiting for the government to step in and offer aid or put the bank in receivership, a resolution that would be more palatable to them and could result in the sale of the bank or its parts at favorable prices.
However, the FDIC would rather avoid a receivership because it could cause a multibillion-dollar loss to its own deposit insurance fund.
The cost of the failures of SVB and Signature Bank last month has prompted the agency to announce plans to levy a special assessment on the industry.
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