Plan Is Approved for Bailout of First RepublicBank
A Charlotte. N.C.-based regional banking company, NCNB Corp., will acquire the subsidiary banks of troubled First RepublicBank Corp. of Texas, U.S. officials said Friday evening at a press conference.
Officials said the arrangement, approved in principle by federal regulatory bodies, accomplishes the restructuring and recapitalization of First RepublicBank, aimed at keeping its banking units in operation.
The FDIC, which insures deposits of $100,000 and less in commercial banks, has already pumped in $1 billion to stem a run on deposits at the bank, the largest in Texas and the 18th-largest in the nation, with $28.6 billion in assets.
At the time of that action on March 16, FDIC Chairman L. William Seidman said the agency would look for a private buyer to infuse capital into the bank. He described the $1 billion in federal money as only an “interim step.”
The General Accounting Office, Congress’ auditing arm, has estimated that the ultimate cost of the rescue would be about $2 billion. However, depending on how the deal is structured, the agency’s initial outlay could be much larger.
The First RepublicBank transaction could surpass the 1984 rescue of Continental Illinois Bank & Trust Co. of Chicago, the largest bank bailout ever. In that case, the FDIC’s initial outlay was $4.5 billion, although it expects to recover all but $1.7 billion of that.
The FDIC had been considering at least four bids for First RepublicBank, which posted a net loss of $2.3 billion for the first six months of 1988.
NCNB Corp. submitted the proposal least costly to federal regulators, and Wells Fargo & Co. of San Francisco remained in contention, sources told several newspapers. Both companies have extensive backgrounds in real estate loans, which make up much of First RepublicBank’s loan portfolio.
Citicorp of New York and First Republic’s management also were among those seeking control of the institution.
First RepublicBank management’s bid would have been backed by Drexel Burnham Inc. and Sears’ financial subsidiaries. NCNB’s bid is backed with capital from Dresdner Bank of West Germany, sources said.
Earlier in the day, banking analyst Frank Anderson of D. Latin & Co. in Dallas told the Charlotte Observer: “They (NCNB) are more innovative than most banks, and I get the feeling they really want the institution.”
Asset Review Under Way
When NCNB acquires First RepublicBank, it would nearly double NCNB’s size and catapult it to the nation’s 10th-largest banking firm. Just three weeks ago, analysts considered the North Carolina bank’s bid a long shot.
Dean DeBuck, spokesman for the Comptroller of the Currency’s office, said federal examiners were in about 30 of First Republic’s banks around Texas conducting “an asset quality review just to update our files and records on these banks.”
Another 10 or so banks under the First RepublicBank holding company are state chartered and would not be examined by federal officials, he said.
On June 30, First RepublicBank reported non-performing assets, or loans that aren’t being paid back, of $5.13 billion, more than 20% of its total loans outstanding. Negative net worth in assets minus liabilities was about $1.1 billion.
