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Tag: federal deposit insurance corp

  • Big banks are bidding for troubled First Republic as FDIC deadline looms | CNN Business

    Big banks are bidding for troubled First Republic as FDIC deadline looms | CNN Business

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    New York
    CNN
     — 

    Federal regulators are holding an auction for ailing regional bank First Republic, a person familiar with the matter tells CNN.

    Final bids are due for First Republic Bank at 4 p.m. ET on Sunday, the source said.

    The Federal Deposit Insurance Corporation, the independent government agency that insures deposits for bank customers, is running the auction.

    Neither First Republic nor the FDIC were immediately available for comment.

    Shares of First Republic

    (FRC)     plunged from $122.50 on March 1 to around $3 a share as of Friday on expectations that the FDIC would step in by end of day and take control of the San Francisco-based bank, its deposits and assets. But that never happened.

    The FDIC had already done so with two other similar sized banks just last month — Silicon Valley Bank and Signature Bank — when runs on those banks by their customers left the lenders unable to cover customers’ demands for withdrawals.

    The Wall Street Journal previously reported that JPMorgan Chase and PNC Financial are among the big banks bidding on First Republic in a potential deal that would follow an FDIC seizure of the troubled regional bank.

    PNC declined to comment. JPMorgan did not respond to requests for comment.

    “We are engaged in discussions with multiple parties about our strategic options while continuing to serve our clients,” First Republic said in a statement Friday night.

    If there is a buyer for First Republic, the FDIC would likely be stuck with some money-losing assets, as was the case after it found buyers for the viable portions of SVB and Signature after it took control of those banks.

    A kind of shotgun marriage, arranged by regulators who didn’t want a significant bank to end up in the hands of the FDIC before it was sold, occurred several times during the financial crisis of 2008 that sparked the Great Recession. Notably, JPMorgan bought Bear Stearns for a fraction of its earlier value in March of 2008, and then in September bought savings and loan Washington Mutual, soon after Bank of America bought Merrill Lynch.

    The failure of Washington Mutual in 2008 was the nation’s largest bank failure ever. First Republic, which is bigger than either SVB or Signature Bank, would be the second largest.

    Soon after collapses of SVB and Signature in March, First Republic received a $30 billion lifeline in the form of deposits from a collection of the nation’s largest banks, including JPMorgan Chase

    (JPM)    , Bank of America

    (BAC)    , Wells Fargo

    (WFC)    , Citigroup

    (C)     and Truist

    (TFC)    , which came together after Treasury Secretary Janet Yellen intervened.

    The banks agreed to take the risk and work together to keep First Republic flush with the cash in the hopes it would provide confidence in the nation’s suddenly battered banking system. The banks and federal regulators all wanted to reduce the chance that customers of other banks would suddenly start withdrawing their cash.

    But while the cash allowed First Republic to make it through the last six weeks, its quarterly financial report Monday evening, with the disclosure of massive withdrawals by the end of March, spurred new concerns about its long-term viability.

    The financial report showed depositors had withdrawn about 41% of their money from the bank during the first quarter. Most of the withdrawals were from accounts with more than $250,000 in them, meaning those excess funds were not insured by the FDIC.

    Uninsured deposits at the bank fell by $100 billion during the course of the first quarter, a period during which total net deposits fell by $102 billion, not including the infusion of deposits from other banks.

    The uninsured deposits stood at 68% of its total deposits as of December 31, but only 27% of its non-bank deposits as of March 31.

    In its earnings statement, the bank said insured deposits declined moderately during the quarter and have remained stable from the end of last month through April 21.

    Banks never have all the cash on hand to cover all deposits. They instead take in deposits and use the cash to make loans or investments, such as purchasing US Treasuries. So when customers lose confidence in a bank and rush to withdrawal their money, what is known as a “run on the bank,” it can cause even an otherwise profitable bank to fail.

    First Republic’s latest earnings report showed it was still profitable in the first quarter — its net income was $269 million, down 33% from a year earlier. But it was the news on the loss of deposits that worried investors and, eventually, regulators.

    While some of those who had more than $250,000 in their First Republic accounts were likely wealthy individuals, most were likely businesses that often need that much cash just to cover daily operating costs. A company with 100 employees can easily need more than $250,000 just to cover a biweekly payroll.

    First Republic’s annual report said that as of December 31, 63% of its total deposits were from business clients, with the rest from consumers.

    First Republic started operations in 1985 with a single San Francisco branch. It is known for catering to wealthy clients in coastal states.

    It has 82 branches listed on its website, spread across eight states, in high-income communities such as Beverly Hills, Brentwood, Santa Monica and Napa Valley, California; in addition to San Francisco, Los Angeles and Silicon Valley. Outside of California, branches are in other high-income communities such as Palm Beach, Florida; Greenwich, Connecticut; Bellevue, Washington; and Jackson, Wyoming.

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  • Who will end up paying for the banking crisis: You | CNN Business

    Who will end up paying for the banking crisis: You | CNN Business

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    A version of this story first appeared in CNN Business’ Before the Bell newsletter. Not a subscriber? You can sign up right here. You can listen to an audio version of the newsletter by clicking the same link.


    New York
    CNN
     — 

    It cost the Federal Deposit Insurance Corporation about $23 billion to clean up the mess that Silicon Valley Bank and Signature Bank left in the wake of their collapses earlier this month.

    Now, as the dust clears and the US banking system steadies, the FDIC needs to figure out where to send its invoice. While regional and mid-sized banks are behind the recent turmoil, it appears that large banks may be footing the bill.

    Ultimately, that means higher fees for bank customers and lower rates on their savings accounts.

    What’s happening: The FDIC maintains a $128 billion deposit insurance fund to insure bank deposits and protect depositors. That fund is typically supplied by quarterly payments from insured banks in the United States. But when a big, expensive event happens — like the FDIC making uninsured customers whole at Silicon Valley Bank — the agency is able to assess a special charge on the banking industry to recover the cost.

    The law also gives the FDIC the authority to decide which banks shoulder the brunt of that assessment fee. FDIC Chairman Martin Gruenberg said this week that he plans to make the details of the latest assessment public in May. He has also hinted that he would protect community banks from having to shell out too much money.

    The fees that the FDIC assesses on banks tend to vary. Historically, they were fixed, but 2010’s Dodd-Frank act required that the agency needed to consider the size of a bank when setting rates. It also takes into consideration the “economic conditions, the effects on the industry, and such other factors as the FDIC deems appropriate and relevant,” according to Gruenberg.

    On Tuesday and Wednesday, members of the Senate Banking Committee and the House Financial Services Committee grilled Gruenberg about his plans to charge banks for the damage done by SVB and others, and repeatedly implored him to leave small banks alone.

    Gruenberg appeared receptive.

    “Will you commit to using your authority…to establish separate risk-based assessment systems for large and small members of the Deposit Insurance Fund so that these well-managed banks don’t have to bail out Silicon Valley Bank?” asked the US Rep. Andy Barr, a Republican who represents of Kentucky’s 6th district.

    “I’m certainly willing to consider that,” replied Gruenberg.

    “if smaller community banks in Texas will be left responsible for bailing out the failed banks in California and New York?” asked US Rep. Roger Williams, a Republican who represents Texas’ 25th district.

    “Let me just say, without forecasting what our board is going to vote, we’re going to be keenly sensitive to the impact on community banks,” replied Gruenberg.

    Representatives Frank Lucas, John Rose, Ayanna Pressley, Dan Meuser, Nikema Williams, Zach Nunn and Andy Ogles all asked similar questions and received similar responses. As did US Sens. Sherrod Brown and Cynthia Lummis.

    “I don’t doubt he’s still fielding a lot of phone calls,” from politicians pressuring him to place the burden on large banks, former FDIC chairman Bill Isaac told CNN.

    Smaller banks are saying that they’re unable to pick up this tab and didn’t have anything to do with the failure of “these two wild and crazy banks,” said Isaac. “They’re arguing to put the assessment on larger banks and as I understand it, the FDIC is thinking seriously about it,” he added.

    A spokesperson from the FDIC told CNN that the agency “will issue in May 2023 a proposed rulemaking for the special assessment for public comment.” In regard to Greunberg’s testimony they added that “when the boss says something, we defer to the boss.”

    Big banks: “We need to think hard about liquidity risk and concentrations of uninsured deposits and how that’s evaluated in terms of deposit insurance assessments,” said Gruenberg to the Senate Banking Committee, indicating that smaller banks that are operating carefully could be asked to bear less of the assessment.

    A larger assessment on big banks would add to what will already be a multi-billion dollar payment from the nation’s largest banks like JPMorgan Chase

    (JPM)    , Citigroup

    (C)    , Bank of America

    (BAC)     and Wells Fargo

    (WFC)    .

    The argument is that the largest US banks will be able to shoulder extra payments without collapsing under it. Those large banks also benefited greatly from the collapse of SVB and Signature Bank as wary customers sought safety by moving billions of dollars worth of money to big banks. 

    Passing it on: Regardless of who’s charged, the fees will eventually get passed on to bank customers in the end, said Isaac. “It’s going to be passed on to all customers. I have no doubts that banks will make up for these extra costs in their pricing — higher fees for services, higher prices for loans and less compensation for deposits.”

    It’s hard out there for a Wall Street banker. Or harder than it was.

    The average annual Wall Street bonus fell to $176,700 last year, a 26% drop from the previous year’s average of $240,400, according to estimates released Thursday by New York State Comptroller Thomas DiNapoli.

    While that’s a big decrease, the 2022 bonus figure is still more than twice the median annual income for US households, reports CNN’s Jeanne Sahadi.

    All in, Wall Street firms had a $33.7 billion bonus pool for 2022, which is 21% smaller than the previous year’s record of $42.7 billion — and the largest drop since the Great Recession.

    For New York City and New York State coffers, bonus season means a welcome infusion of revenue, since employees in the securities industry make up 5% of private sector employees in NYC and their pay accounts for 22% of the city’s private sector wages. In 2021, Wall Street was estimated to be responsible for 16% of all economic activity in the city.

    DiNapoli’s office projects the lower bonuses will bring in $457 million less in state income tax revenue and $208 million less for the city compared to the year before.

    Beleaguered retailed Bed Bath & Beyond will attempt to $300 million of its stock to repay creditors and fund its business as it struggles to avoid bankruptcy, reports CNN’s Nathaniel Meyersohn.

    If it’s not able to raise sufficient money from the offering, the home furnishings giant said Thursday it expects to “likely file for bankruptcy.”

    Bed Bath & Beyond was able to initially avoid bankruptcy in February by completing a complex stock offering that gave it both an immediate injection of cash and a pledge for more funding in the future to pay down its debt. That offering was backed by private equity group Hudson Bay Capital.

    But on Thursday, Bed Bath & Beyond said it was terminating the deal with Hudson Bay Capital for future funding and is turning to the public market.

    Shares of Bed Bath & Beyond dropped more than 26% Thursday. The stock was trading around 60 cents a share.

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  • FDIC sells most of failed Signature Bank to Flagstar | CNN Business

    FDIC sells most of failed Signature Bank to Flagstar | CNN Business

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    New York
    CNN
     — 

    A week after Signature Bank failed, the Federal Deposit Insurance Corporation said it has sold most of its deposits to Flagstar Bank, a subsidiary of New York Community Bank.

    On Monday, Signature Bank’s 40 branches will begin operating as Flagstar Bank. Signature customers won’t need to make any changes to do their banking Monday.

    New York Community Bank bought substantially all of Signature’s deposits and a total of $38.4 billion worth of the company’s assets. That includes $12.9 billion of Signature’s loans, which New York Community Bank purchased at a steep discount -— it paid just $2.7 billion for them. New York Community Bank also paid the FDIC stock that could be worth up to $300 million.

    At the end of last year, Signature had more than $110 billion worth of assets, including $88.6 billion of deposits, showing how the run against the bank two weeks ago led to a massive decline in deposits.

    Not included in the transaction is about $60 billion in other assets, which will remain in the FDIC’s receivership. It also doesn’t include $4 billion in deposits from Signature’s digital bank business.

    As the banking crisis spreads, banks have grown increasingly wary of taking on risk. That’s likely why New York Community Bank was unwilling to take on all Signature’s assets.

    “We are unsurprised the FDIC retained loans as we would expect banks to be cautious on quickly buying loans without liability and loss protections,” said Jaret Seiberg, analyst at TD Cowan. “More broadly, we see it as positive for consumer confidence for the branches to be opening Monday as NYCB branches.”

    The FDIC said Sunday it expects to sell off those assets over time, and the total cost to the government will ultimately be about $2.5 billion.

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  • Confused about the bank meltdown? Here’s how to speak Wall Street | CNN Business

    Confused about the bank meltdown? Here’s how to speak Wall Street | CNN Business

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    New York
    CNN
     — 

    Wall Street can seem bewildering, given its sheer amount of jargon, banking terms, and acronyms.

    But headlines this week, from the collapse of Silicon Valley Bank to Credit Suisse’s need for a lifeline to instability at First Republic, have made the business of finance a national concern.

    So when you hear the FDIC is taking over, a Treasury portfolio is sinking or a bank was backstopped and bailed out, what exactly does that mean?

    Here’s a guide to all the key terms you’ve been hearing.

    It’s an acronym for the Federal Deposit Insurance Corporation, an independent government agency that protects depositors in banks. It’s one of the main names as banking failures play out because it can step in and make sure the institutions are operating properly.

    When a bank fails, the standard insurance amount is $250,000 per depositor, per insured bank, for each account ownership category.

    Providing financial support to an institution that would otherwise collapse. Bailouts are associated with government intervention, as it so famously did during the 2008 financial crisis.

    It’s important to note that though a government dispatched a rescue mission for SVB and First Republic, they were not bailed out by it.

    How easily a company or bank can turn an asset to cash without losing a ton of its value. Liquidity can be used to gauge the ability to pay off short-term loans or other bills. People feel comfortable in liquid markets because it’s generally fast and easy to buy and sell.

    The most “liquid” asset, as you can probably guess, is cash.

    Deposits are cash you put into your bank account, and withdrawals are money that’s taken out. A bank run is when a rush of clients withdraw money all at once, often due to rumor or panic.

    If a bank has a ratio above 100% (like First Republic), then it loans out more money than it has deposits. That’s not a good situation to be in.

    Investments backed by the US government – and known to be one of the safest ones out there. They include Treasury Bills, Treasury Bonds and Treasury Notes. However, Treasuries are sensitive to broader economic conditions like inflation and changing interest rates.

    The value of SVB’s Treasuries portfolio sank as interest rates rose.

    Anything that could be used to generate cash flow. That could be tangible assets like stocks and buildings, or intangible assets like brand recognition.

    Inflow is the money going into a business – think from product sales and from smart investments. Outflow is cash leaving the business.

    Technically, it’s alternative steps a business takes to meet its goals. That could include strategies like diversifying and product development.

    But what does it really mean? The company might be thinking about putting itself up for sale.

    A rapid and mass selling of a stock based on an upcoming fear – like rumors of a bank collapse.

    Cash or other rewards companies gift to their shareholders.

    An action that lets a company keep surviving. For example, Credit Suisse just got a $54 billion lifeline from the Swiss central bank, though that hasn’t entirely quelled investor fears yet. Another bank that benefited from a lifeline is First Republic, when 11 banks deposited $30 billion.

    This term is used widely in the financial sector to describe a last-resort financial protection, almost like an insurance policy. It’s a secondary source of funds through either credit support or guaranteed payment for unsubscribed shares.

    A system used by the FDIC that lets it take action on a bank crisis that could drag down the entire sector with it. Though it’s pretty rare to enact it, the FDIC used this exception to take over SVB and Signature Bank last week.

    This is the Fed’s main way to directly lend money to banks and provide them more liquidity and stability. The loans last up to 90 days. Many banks are utilizing this tool right now because the Fed made it easier to borrow from the discount window in the wake of SVB to avoid further bank runs.

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  • SVB employees to receive 45 days of employment at 1.5 times pay, reports say | CNN Business

    SVB employees to receive 45 days of employment at 1.5 times pay, reports say | CNN Business

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    New York
    CNN
     — 

    The US Federal Deposit Insurance Corporation offered Silicon Valley Bank employees 45 days of employment and 1.5 times their salary, reports say.

    An FDIC official did not comment on the details to CNN, but said it is standard practice and one of the first steps the independent government agency takes after being named receiver.

    US workers also received their annual bonuses on Friday, just hours before FDIC took over the collapsed lender, Axios reported.

    SVB collapsed Friday morning after a stunning 48 hours in which a bank run and a capital crisis led to the second-largest failure of a financial institution in US history.

    California regulators shuttered the tech lender and put it under the control of the FDIC.

    The FDIC is acting as a receiver, which typically means it will liquidate the bank’s assets to pay back its customers, including depositors and creditors.

    Employees, except essential and branch workers, were told to keep working remotely, Reuters reported. The bank had more than 8,500 employees at the end of 2022.

    The FDIC said the main office and all 17 branches of SVB, located in California and Massachusetts, will reopen Monday.

    The FDIC, an independent government agency that insures bank deposits and oversees financial institutions, said all insured depositors will have full access to their insured deposits by no later than Monday morning. It said it would pay uninsured depositors an “advance dividend within the next week.”

    The FDIC took over in the midmorning Friday; usually it waits until markets close.

    “SVB’s condition deteriorated so quickly that it couldn’t last just five more hours,” wrote Better Markets CEO Dennis M. Kelleher. “That’s because its depositors were withdrawing their money so fast that the bank was insolvent, and an intraday closure was unavoidable due to a classic bank run.”

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