First Republic in talks with major banks about a rescue plan

(CNN) — First Republic Bank, facing a crisis of confidence from investors and customers, is actively discussing options for a lifeline, people familiar with the matter said.

Some of America’s largest banks are in talks to inject billions of dollars into the struggling San Francisco lender, giving it additional financial firepower to meet customer withdrawals and boost confidence.

The consortium of big banks involved in providing the lifeline includes JPMorgan Chase, Bank of America, Wells Fargo, Citigroup and Truist, the people told CNN.

The lifeline is expected to total roughly $30 billion, one of the people said.

A First Republic spokesman declined to comment.

US officials appear to be pleased with the prospect of an industry-led rescue of First Republic. The fact that America’s largest banks are discussing a lifeline for the San Francisco-based lender is a welcome sign of confidence in the strength of the banking system, a US official told CNN.

The official said such a rescue would complement actions that regulators have taken in recent days to safeguard deposits across the country.

The talks were first reported by the Wall Street Journal.

Markets on edge over liquidity woes

First Republic’s shares were halted several times for volatility Thursday. The stock was briefly up 22% in the afternoon after plunging more than 30% earlier in the day.

The bank’s problems reflect continued worries about the banking system in the aftermath of the collapse of Silicon Valley Bank and Signature Bank.

Both Fitch Ratings and S&P Global Ratings downgraded First Republic Bank’s credit rating on Wednesday over concerns that depositors could pull their cash.

Many regional banks, including First Republic, have large amounts of uninsured deposits above the $250,000 FDIC limit. Although not close to SVB’s massive percentage of uninsured deposits (94% of its total), First Republic has a sizable 68% of total deposits that are uninsured, according to S&P Global.

That led many customers to exit the bank and put their money elsewhere, creating a problem for First Republic: It has to borrow money or sell assets to pay customers their deposits in cash.

To make money, banks use a portion of customers’ deposits to give out loans to other customers. But First Republic has an unusually large 111% liability-to-deposit ratio, S&P Global says. That means the bank has lent out more money than it has in deposits from customers, making it a particularly risky bet for investors.

The Federal Reserve created a loan system designed to prevent regional banks from failing after SVB collapsed. The facility will allow banks to give the Fed their Treasury bonds as collateral for one-year loans. In return, the Fed will give banks the value that the banks paid for the Treasuries, which have plunged in the past year as the Fed has hiked interest rates.

That extraordinary federal intervention appears to have been insufficient to keep investors satisfied.

First Republic on Sunday announced a deal with JPMorgan to gain fast access to cash if needed, and the bank then said it had $70 billion in unused assets that it could quickly use to pay customers’ withdrawals if needed.

The-CNN-Wire
™ & © 2023 Cable News Network, Inc., a Warner Bros. Discovery Company. All rights reserved.