Just a day after America’s largest banks poured $30 billion into the bank, First Republic Bank was in talks to sell part of it to other banks or private equity firms, three A sign that the lender is in jeopardy, said someone familiar with the process. far from conquering its troubles.
The deals under discussion, involving a new share sale, represent a new level of urgency for a bank that has been under growing pressure since the collapse of Silicon Valley Bank last week. . First Republic has been working with advisors all week, hoping to attract a rescuer, and a deal could still result in the sale of the entire company. During that time, customers withdrew deposits, and the bank’s market value fell to $4 billion on Friday from about $22 billion in early March.
Even before last week’s chaos, First Republic was seen as a desirable acquisition target, with a list of wealthy clients that could help fuel any wealth management business. But it is unclear how much buyers are willing to pay the bank due to the bank’s recent troubles.
A representative for the First Republic declined to comment.
The efforts of San Francisco-based First Republic show how quickly Silicon Valley Bank’s troubles have spread to the broader market. The financial situation of many banks similar to SVB has come under close scrutiny by insecure investors looking for potential loopholes, while depositors worried that their funds are not safe have been lost. move their accounts to larger, more stable banks.
Potential buyers also swarmed SVB and Signature Bank, which failed on Sunday. Both banks remain under the control of the Federal Deposit Insurance Corporation, which has promised to pay depositors in full. Finance Minister Janet Yellen said they had been trying all week to find a buyer for their business.
The FDIC’s goal, Yellen said on CNBC on Friday about Signature Bank and SVB, “is ultimately to do what has the lowest cost to the American people — and we know that the lowest cost is trying to sell. these organizations as quickly as possible. feasible.” But it’s not clear the government will be able to find a buyer for the entire business without making substantial concessions, such as agreeing to cut some of the damage.
On Friday, SVB Financial, the parent company of Silicon Valley Bank, filed for bankruptcy, which could make it easier for the company to sell some parts of its business that are in good financial standing.
Private equity firms are among potential buyers looking to buy back the shards of failed banks. For example, Apollo Global Management, a major investment firm with a large direct lending business, has its eye on Silicon Valley Bank’s large loan portfolio, a person briefed on the matter told Reuters. know. The FDIC has not yet allowed them to participate in the buying and selling process, the person said.
“Auctioning that kind of business gets complicated because there are different bidders interested in different pieces,” said Eric Talley, a professor of corporate law at Columbia Law School. “Assembling and shoving all those cats into a coherent sales process can just be time consuming, difficult, and complicated.”
For smaller banks, any deal would offer the possibility to expand their footprint in the region or move into a new area. Acquiring Silicon Valley Bank could be a path to the venture capital industry, while Signature has a strong presence in New York.
The First Republic boasts franchises on both coasts, but the most elaborate efforts of colleagues and government have yet to stabilize it.
On Thursday, JPMorgan Chase, Bank of America, Wells Fargo and Citigroup, along with seven other prominent banks, said they would inject $30 billion into struggling lenders to avert financial ruin. . That $30 billion is really a huge deposit, in the same way that customers and businesses deposit their money in the bank every day, to help the First Republic meet its short-term obligations, although the larger banks can withdraw their money quickly after four months, and they will be paid interest during that time.
Shares rallied on Thursday following the bailout announcement, but by Friday morning, the lender’s shares had plummeted again. That has spawned new efforts to find a new backstop to keep the bank from collapsing, said people familiar with the process. The sale of shares under discussion, which is still subject to change, is an effective way for the First Republic to collect funds that they won’t have to repay — although in return they will transfer ownership part of its business to outsiders.
Many analysts argue that investors may see bailing out the First Republic as a short-term solution. Analysts at UBS said on Friday that bank stocks will “only really stabilize after the market feels as though there is a longer-term solution” to the woes of the First Republic.
The First Republic explored options for saving itself. Before announcing its bailout on Thursday, it was working with advisors on the possibility of selling to a larger rival or a rescue that could include a quick cash injection to ensure it has enough cash. to pay for future customer withdrawals. The lender also tried to shore up its finances last weekend with an emergency loan of up to $70 billion from the Federal Reserve and JPMorgan.
