FDIC Will Put Up $4 Billion to Rescue First RepublicBank

The Federal Deposit Insurance Corp. said late Friday that it was pledging $4 billion for NCNB Corp. of Charlotte, N.C., to take over First RepublicBank Corp. of Dallas in potentially the largest federal bank rescue ever.

FDIC, which in March pumped $1 billion into banks owned by the ailing holding company, said it will infuse an additional $2 billion and expects eventually to have to pay out another $1 billion.

NCNB has agreed to pay between $210 million and $240 million to acquire a 20% stake in what will be called NCNB Texas National Bank. For five years, it will have an exclusive option to purchase the 80% of the bank that will be owned by the FDIC.

FDIC Chairman L. William Seidman said Texas billionaire H. Ross Perot had promised to support NCNB’s share of the investment, but said he doubted that Perot’s help would be needed.

The First RepublicBank deal rivals the 1984 rescue of Continental Illinois Bank & Trust Co. of Chicago, the largest bank bailout to date. In that case, FDIC’s initial outlay was $4.5 billion, although it expects to recover all but $1.7 billion of that.

Seidman said he could not estimate the ultimate cost of the First RepublicBank transaction, but said “it is certainly possible this will be a more costly deal” than Continental Illinois.

He said all of First RepublicBank’s 41 subsidiary banks would remain open under their normal schedule, including those with Saturday hours. The banks will open under their new name on Monday.

Seidman said the transaction so far was an agreement in principle, and he said he expected it to be made final “somewhere in the next three months.”

Until then, FDIC has taken control of the banks under a bridge bank arrangement, a new legal device that is being used for only the second time. NCNB will manage the banks on FDIC’s behalf.

In order for FDIC to take over First RepublicBank under bridge bank rules, the comptroller of the currency, the regulator of nationally chartered banks, had to first declare the banks owned by the holding company insolvent.

This leaves owners of the holding company’s $1.2 billion in debt and preferred stock with little chance of being repaid.

Seidman said, “It wouldn’t surprise me if we see some lawsuits” from bondholders.

He said NCNB was chosen from among five bidders because it offered “the least costly alternative the FDIC believes was viable.” The next best bid would have cost the agency nearly $1 billion more, he said.

Seidman declined to name the other bidders. However, published reports have named these bidders: Wells Fargo & Co. of San Francisco, Citicorp of New York, an investment group headed by First RepublicBank’s management and another investment group that included former Texas Sen. John Tower.

FDIC, which gets its money through an assessment on the nation’s 14,000 commercial banks and guarantees deposits up to $100,000, is having one of its worst years ever.

Loss Expected

Last year, 184 banks failed, a post-Depression record, and an equal number or slightly more are expected to fail this year.

All this is expected to cause FDIC’s insurance fund to suffer its first loss this year. Seidman said he estimates that the insurance fund will decline by 10% from its $18.3 billion balance at the end of 1987.

First RepublicBank posted a net loss of $2.3 billion for the first six months of 1988.

On June 30, First RepublicBank reported non-performing assets, or loans that aren’t being paid back on schedule, of $5.13 billion, more than 20% of its total loans outstanding. Negative net worth--the amount that liabilities exceed assets--was about $1.1 billion.