First Republic Bank is in talks to raise money from other banks or private equity firms by issuing new shares, in a desperate bid to bolster its finances, a day after the biggest US banks gave it a facelift. injection of $30 billion, three people with knowledge of the process said.
The terms of any deal are still under discussion, two of the people said. A complete sale of the bank is also possible, one of the people said. The bank’s market value fell to $4 billion on Friday from around $22 billion in early March.
A representative of the First Republic declined to comment.
First Republic’s efforts show how quickly the problems of one lender, Silicon Valley Bank, which collapsed last week, have spread to the broader market. The balance sheets of many banks similar to Silicon Valley Bank have come under intense scrutiny from anxious investors looking for potential financial holes, while depositors, worried their money is not safe, have moved it elsewhere.
Actions of First Republic enjoyed a brief respite after JPMorgan Chase, Bank of America, Wells Fargo and Citigroup, along with seven other major banks, announced Thursday they were pumping $30 billion into the embattled lender to avoid financial ruin. But on Friday morning, shares of the midsize lender plunged again.
That $30 billion amount is effectively a gigantic depository, much like how everyday customers and businesses keep their money in a bank. That money is intended to help First Republic meet its short-term obligations. By comparison, raising money by issuing shares will allow the bank to strengthen the underlying business and bolster its ability to handle losses.
Many analysts said investors might see a First Republic bailout as a short-term fix. UBS analysts said bank shares would “really sell off only after the market feels there is a longer-term solution” to First Republic’s woes.
First Republic had already been exploring options to save itself. Before the lifeline was announced on Thursday, it was working with advisers on a potential sale to a larger rival or a bailout that could include a quick cash injection to ensure it had enough to pay for future customer withdrawals. The lender also tried to shore up its finances last weekend with up to $70 billion in emergency loans from the Federal Reserve and JPMorgan.