First Republic had been hoping to strike a deal before being put into F.D.I.C. receivership, because a government seizure would mean shareholders of the company and some of its bondholders would probably lose all or most of their investment. Until Thursday night, the bank and its advisers remained in conversation with the government, some banks and private equity firms about a potential deal. But neither the government nor the banks, were ultimately interested in such an arrangement, one of the people said.
By Friday morning, it was clear to everybody involved that First Republic had no option other than a government takeover, the people said. First Republic’s stock closed Friday down another 43 percent and continued falling in extended trading.
First Republic was worth just $650 million as of Friday afternoon, down from more than $20 billion before the March crisis, a reflection of investors’ realization that shareholders could be wiped out.
A sale to a larger bank would likely mean that all of First Republic’s deposits are protected since they would become accounts at the acquiring bank. That includes uninsured deposits, which stood at $50 billion at the end of March — a sum that includes the $30 billion from the 11 big banks.
By seeking to line up a buyer for First Republic before formally putting the bank into receivership, regulators appear to be hoping to avoid the tumult that characterized the fall of Silicon Valley Bank. It took several weeks for government officials to sell that bank’s remnants to First Citizens BancShares, in a deal that included about $72 billion in loans at a deeply discounted price.
The government prefers to find a buyer for a failed bank as quickly as possible to minimize losses to the government’s deposit insurance fund. The longer it takes to find a buyer, the more likely that customers and employees will abandon a failed bank, leaving behind a rapidly withering business.
PNC, one of country’s largest regional banks that is based in Pittsburgh, had previously considered buying First Republic. But PNC couldn’t make a deal work because it would have to take on large losses from First Republic’s relatively low-rate home mortgages and other loans, according to one of the people. The challenges of accounting for First Republic’s loans put off other potential buyers, too.
JPMorgan’s chief executive, Jamie Dimon, was a key architect of the plan to inject $30 billion into First Republic Bank. During the 2008 financial crisis, Mr. Dimon led the rescue of two banks — Bear Stearns and Washington Mutual.