By Greg Roumeliotis
NEW YORK (Reuters) - The U.S. Federal Deposit Insurance Corporation (FDIC) is preparing to place First Republic Bank (NYSE:FRC) under receivership imminently, a person familiar with the matter said on Friday, sending shares of the lender down nearly 50% in extended trading.
The U.S. banking regulator decided the troubled regional lender's position has deteriorated and there is no more time to pursue a rescue through the private sector, the source told Reuters, requesting anonymity because the matter is confidential.
Big banks including JPMorgan Chase & Co (NYSE:JPM) and PNC Financial Services Group (NYSE:PNC) are vying to buy First Republic following its seizure by the government, which could come as soon as this weekend, the Wall Street Journal reported on Friday.
PNC, JPMorgan and First Republic declined to comment on the report, while the FDIC did not immediately respond to a request for comment
If the San Francisco-based lender falls into receivership, it would be the third U.S. bank to collapse since March. First Republic said this week its deposits had slumped by more than $100 billion in the first quarter.
Shares of the bank closed down 43%, worsening a stock rout that has wiped out 75% of its value this week. The stock lost more than half of its value on Friday and touched a record low of $2.99.
At its lowest, the bank had a market capitalization of nearly $557 million, a far cry from its peak valuation of more than $40 billion in Nov. 2021.
Shares of some other regional banks also fell, with PacWest Bancorp down 2% after the bell while Western Alliance (NYSE:WAL) was down 0.7%.
The FDIC, the Treasury Department and the Federal Reserve were among the government bodies that orchestrated meetings with financial companies about a lifeline for the bank, Reuters reported earlier on Friday.
News of the imminent move to put First Republic in receivership comes the same day the Federal Reserve and FDIC detailed their supervisory lapses before deposit runs caused the collapse of Silicon Valley Bank and Signature Bank (OTC:SBNY) in March.
The Fed's assessment of its inadequacies in identifying problems and pushing for fixes at Santa Clara, California-based SVB came with promises for tougher supervision and stricter rules for banks.
Large banks had orchestrated an earlier lifeline for First Republic, placing $30 billion in combined deposits from U.S. banking heavyweights, including Bank of America Corp (NYSE:BAC)., Citigroup Inc (NYSE:C)., JPMorgan and Wells Fargo (NYSE:WFC) & Co.
But First Republic struggled to find support from larger banks or private equity firms on its proposed move to create a so called "bad bank" or sell assets such as securities and mortgage book.
The large banks who placed the deposits either declined to comment or were not available to comment.
First Republic, which reported its first-quarter earnings on Monday, had said it plans to shrink its balance sheet and slash expenses by cutting executive compensation, paring back office space and laying off 20% to 25% of employees in the second quarter.
John Guarnera, senior corporate analyst at RBC Bluebay Asset Management, said First Republic case is an "evolving situation."
"The rest of the regional bank system feels like it's in a different place than where FRC is," he said.