Just a day after the biggest US banks gave it a $30 billion infusion, First Republic Bank was in talks to sell part of itself to other banks or private equity firms, three people said with knowledge of the process, an indication that the lender was at risk is far from overcoming its problems.
The deals under discussion, which would involve the sale of new shares, represent a new level of urgency for a bank that has come under mounting pressure since the collapse of Silicon Valley Bank last week. First Republic had been working with advisors all week to explore potential deals, and a transaction could still result in an outright sale of the company. Meanwhile, customers were withdrawing deposits and the bank’s market value shrank to $4 billion on Friday from around $22 billion in early March.
Even before last week’s turmoil, First Republic was a hot acquisition target given its large base of wealthy clients who could boost any wealth management business. However, it’s unclear how much a buyer would now be willing to pay for the bank given the recent troubles.
A representative of the First Republic declined to comment.
The efforts of the San Francisco-based First Republic show how quickly Silicon Valley bank’s troubles have spread to the broader market. The finances of many banks similar to SVB have come under intense scrutiny by unsettled investors looking for potential holes, while depositors have moved their accounts to larger, more stable banks, concerned that their money is not safe.
Potential buyers also circle around 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 off depositors in full. They have been trying to find buyers for their business all week, Deputy Finance Minister Wally Adeyemo said on Friday.
The goal of the FDIC, Mr. Adeyemo said on CNBC on Friday about Signature Bank and SVB, “is ultimately to do what is least cost to the American people — and we know the least cost is to try to sell these institutions as quickly as possible.” However, it is unclear whether the government will be able to find a buyer for the whole deal without significant concessions, such as agreeing to cap a share of any losses.
On Friday, SVB Financial, the parent company of Silicon Valley Bank, filed for bankruptcy, which could make it easier for the company to sell certain parts of the business that are in good financial shape.
Private equity firms are among the potential buyers looking for parts of the fallen banks. For example, Apollo Global Management, a large investment firm with a large direct lending business, has been keeping tabs on Silicon Valley Bank’s large loan portfolio, said a person briefed on the matter. The FDIC has not yet put her in a sales process, this person said.
“It just gets complicated to auction this type of deal because there are different bidders interested in different parts,” said Eric Talley, a professor of corporate law at Columbia Law School. “Centuring and herding all of these cats into a coherent sales process can just be time-consuming, difficult and complicated.”
For smaller banks, each deal would present an opportunity to expand regional presence or move to a new one. The acquisition of Silicon Valley Bank could be a route into the venture capital industry, while Signature has a strong presence in New York.
First Republic boasts a franchise on both coasts, and yet the most painstaking efforts of its peers and the 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 the troubled lender to avert financial ruin. That $30 billion amount was effectively a gargantuan deposit, much like how everyday customers and businesses park their money at a bank to help First Republic meet short-term obligations, even though the larger banks may withdraw their money in as little as four months , and they earn interest in the meantime.
Shares rallied on Thursday after the bailout announcement, but the lender’s shares plummeted again on Friday morning. That sparked renewed efforts, people familiar with the process said, to find new backing to prevent the bank from collapsing. The stock sale being discussed, which is subject to change, is effectively a way for First Republic to raise funds it doesn’t have to repay — though in return it would give ownership of some of its business to an outsider.
Many analysts said investors may view First Republic’s rescue as a short-term fix. Analysts at UBS said on Friday that bank stocks “won’t really settle down until the market feels there’s a longer-term solution” to First Republic’s woes.
First Republic had already been looking for ways to save itself. Before the Lifeline announced Thursday, it was working with advisors on a possible sale to a larger competitor or a bailout that could include a quick cash injection to ensure it has enough to pay off customer withdrawals going forward. The lender had also tried to shore up its finances with up to $70 billion in emergency loans from the Federal Reserve and JPMorgan over the past weekend.
