clock menu more-arrow no yes

Filed under:


The federal government announced Friday night it had seized control of the stricken First Republic Bank Corp. of Texas and had approved its acquisition by NCNB Corp. of Charlotte, N.C.

The Federal Deposit Insurance Corp. said it would pump $4 billion into the renamed NCNB Texas National Bank. The government action was not a bailout but the use of congressionally mandated authority to create a "bridge" bank open for business as usual Saturday with full services."The FDIC selected this restructuring as the lowest cost-acceptable plan," said FDIC Chairman L. William Seidman. "NCNB Corp. brings to the task an exceptionally talented and deep management team, a reputation for innovation and accomplishment and a strong commitment to the revitalization of the First Republic Banks."

First Republic Chairman Albert Casey said, "We are extremely disappointed that the FDIC did not accept our plan, but we wish NCNB every success and pledge our full cooperation."

The government's initial outlay is expected to be about $2 billion, Seidman said. But that is added to the $1 billion the FDIC advanced First Republic March 17 in a move to stop a run on deposits - and another $1 billion is expected to be needed to help capitalize the bank in the immediate future.

Still, the cost to the government could be lower than the projected $4 billion, Seidman said, because the FDIC expects to recover some of its investment if NCNB is successful in restoring the Texas bank's health.

NCNB has agreed to infuse as much as $240 million into its new holding, an amount equal to 20 percent of the new bank's equity. NCNB will manage it under contract with the government during an interim period of recapitalization, and in the next five years the North Carolina institution will have an exclusive option to buy the FDIC's 80 percent remaining interest, Seidman said.

The FDIC has been pondering for months what to do about First Republic, one of many financial institutions that have suffered badly from the slump in oil and real estate prices in the Southwest. The company has been the largest of its kind in Texas with 40 banks and 130 banking sites statewide.

First Republic lost $2.3 billion in the first half of 1988, losses blamed primarily on write-offs of bad real estate loans. At the end of last month, it had $20.2 billion in deposits and $26.8 billion in assets.

By declaring First Republic banks insolvent, the way was cleared for federal regulators to accept a bid from outside investors or First Republic management to recapitalize the banks. NCNB and Wells Fargo Bank were among those making bids. Two prominent Texans, former Sen. John Tower and former Gov. Mark White, led separate investor groups seeking to keep First Republic in Texas hands.

Shares of First Republic, traded on the New York Stock Exchange, have lost practically all value in the last year, down from $26 per share to around $1 dollar a share in recent days. First Republic bonds - not secured by the company - have been traded in recent weeks at 20 percent of face value.