Some of the US’s biggest banks are weighing a rescue bid for First Republic, a mid-sized bank whose shares have been pummeled amid a wider banking turmoil.
Citigroup, Goldman Sachs, JP Morgan and Wells Fargo are among the banks discussing a lifeline for the San Francisco-based lender, according to the Wall Street Journal.
The Journal also reported that top executives at the bank had sold millions of dollars in shares in the bank in the two months leading up to its share price collapse. In total insiders have sold $11.8m worth of stock so far this year.
First Republic’s shares fell 22% on Thursday morning but bounced back after the news of a possible deal broke. They are down close to 70% over the last five trading days and the bank’s market capitalization has fallen from $21bn on 8 March, when the Silicon Valley Bank ( SVB) crisis began, to less than $5bn.
Any deal would need to be passed by regulators and the Journal said the situation was highly uncertain.
First Republic, known for its affluent customer base, has been hit hard following the collapse of SVB, which was seized by federal regulators over the weekend.
First Republic, like some other regional banks, has a large amounts of uninsured deposits above the $250,000 government insured limit. SVB’s uninsured deposits accounted for 94% of its total. Some 68% of First Republic deposits are uninsured, according to S&P Global, far lower than SVB but high enough to worry investors and depositors.
Customers have pulled billions in deposits from the bank and S&P Global Rating downgraded the bank’s credit rating to junk on Tuesday.
Over the weekend the bank announced it had secured another $70bn in financing from the Federal Reserve and JP Morgan.
“First Republic’s capital and liquidity positions are very strong, and its capital remains well above the regulatory threshold for well-capitalized banks,” Jim Herbert, founder and executive chairman, and Mike Roffler, CEO and president of First Republic, said in a statement.
But the announcement appears to have done little to assuage investor and customer fears.
SVB’s collapse was the second largest since the collapse of Washington Mutual in 2008, at the height of the global financial crisis. It was accompanied by the failure of New York-based Signature, which also failed after fears about its finances led customers to yank their funds.
Speaking to Congress on Thursday, the treasury secretary, Janet Yellen, said the US banking system remained “sound”.
“I can reassure the members of the committee that our banking system is sound, and that Americans can feel confident that their deposits will be there when they need them,” she said.
The Fed’s intervention has drawn parallels to the unpopular bailout of Wall Street banks after the 2008 financial crisis. Yellen said the latest rescue efforts were markedly different.
“Shareholders and debt holders are not being protected by the government,” she said. “Importantly, no taxpayer money is being used or put at risk with this action.”
