On Thursday, Reuters reported that three sources familiar with the matter confirm that US officials are organizing urgent talks seeking to rescue First Republic Bank (FRC.N) as private sector talks being organized by the bank’s advisers have failed to produce a deal.
The Federal Deposit Insurance Corporation (FDIC), the Treasury Department and the Federal Reserve have begun to orchestrate meetings with financial firms, looking to assemble a rescue deal for the troubled lender.
Because of the government’s involvement, more parties, including banks and private equity firms have joined the discussions.
Unclear is whether the government is looking at participating itself, firsthand, in any rescue of the bank. However a source says, just the government’s involvement in organizing the talks is helping First Republic executives to put together a deal which would help the bank avoid a direct takeover by US regulators, according to one of the sources.
In March, First Republic became the epicenter of the US banking crisis, as fears triggered by the failures of Silicon Valley Bank and Signature Bank caused wealthy clients at Frist Republic to begin withdrawing deposits en masse, leaving the bank reeling with liquidity issues.
11 of the biggest banks stepped in at the time, depositing $30 billion in the bank on March 16th, hoping to give First Republic enough liquidity to avoid a collapse, and stopping any potential contagion throughout the banking sector.
In a statement, First Republic said, “We are engaged in discussions with multiple parties about our strategic options while continuing to serve our clients.”
Concerns about First Republic’s positions intensified this week, with word on Monday that the bank had experienced over $100 billion in outflows over the first quarter. Although the bank said its deposits had subsequently stabilized, it also noted it was losing money due to having replaced its departed deposits with interest-bearing funding from the Federal Reserve.
Two of the sources noted that the government preferred to see First Republic rescued by a private-sector deal, rather than it falling into FDIC receivership.
However so far the options proposed, including selling assets, or the formation of a “bad bank” to separate out underwater assets, have failed to attract interest in a deal, according to the sources.
Any proposed deal will need to cover the losses which First Republic, and any potential purchaser of the bank, will end up with in the deal. The losses will arise from the loan book and fixed-income portfolio of the bank, which will see their low-yielding assets marked down, given the rise in interest rates making them less desirable and worth less.
One source said First Republic is looking at shareholders taking a major hit, or even a total loss in any deal, as one of the options to prevent the seizure of the bank by US regulators.
First Republic’s stock price has fallen 95% since the regional banking crisis began on March 8th.
