Just one day after the biggest U.S. banks gave it a $30 billion infusion, First Republic Bank was in talks to sell a piece of itself to other banks or private equity firms, three people with knowledge of the process said, an indication that the imperiled lender is far from conquering its troubles.
The deals under discussion, which would involve selling new shares, represent a fresh level of urgency for a bank that has been under mounting pressure since last week’s collapse of Silicon Valley Bank. First Republic had been working with advisers all week, exploring possible deals, and a transaction could still result in a full sale of the company. All the while, customers have been pulling deposits and the bank’s market value shrank to $4 billion on Friday from around $22 billion at the beginning of March.
Even before the past week’s tumult, First Republic was seen as a desirable acquisition target, given its large roster of wealthy clients that could help boost any asset management business. But it is unclear how much any buyer would now be willing to pay for the bank given its recent troubles.
A representative of First Republic declined to comment.
The efforts by the San Francisco-based First Republic show how swiftly the troubles of Silicon Valley Bank have spread to the wider market. The finances of many banks similar to SVB have come under intense scrutiny by unsettled investors looking for potential holes, while depositors, worried that their money is not safe, have moved their accounts to larger, more stable banks.
Potential buyers have also been circling 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 out depositors in full. They have been trying all week to find buyers for their business, the deputy Treasury secretary Wally Adeyemo said on Friday.
The F.D.I.C.’s goal, Mr. Adeyemo said on CNBC on Friday of Signature Bank and SVB, “is ultimately to do what is the least cost for the American people — and we know that the least cost is to try and sell these institutions as quickly as possible.” But it is unclear the government will be able to find a buyer for the whole business without significant concessions, like agreeing to cut 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 health.
Private equity firms are among the potential buyers looking to pick off pieces of the fallen banks. For instance, Apollo Global Management, a large investment firm with a large direct lending business, has been eyeing Silicon Valley Bank’s large loan portfolio, a person briefed on the matter said. The F.D.I.C. has not yet let them into a sale process, that person said.
“It just becomes complicated to auction off that kind of business because there are different bidders who are interested in different parts,” said Eric Talley, a professor of corporate law at Columbia Law School. “Corralling and herding all of those cats into a coherent sales process can be just time consuming and difficult and complicated.”
For smaller banks, any deal would bring the possibility of expanding regional footprint or moving into a new one. Acquiring Silicon Valley Bank could be a path 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 elaborate 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 that they would inject $30 billion into the beleaguered lender to stave off financial ruin. That $30 billion amount was effectively a gigantic deposit, much like how everyday customers and businesses park their money in a bank, meant to help First Republic meet short-term obligations, though the larger banks may pull out their money in as little as four months, and they will be paid interest in the meantime.
Shares rallied on Thursday after the bailout announcement, but by Friday morning, the lender’s stock plummeted again. That set off renewed efforts, the people with knowledge of the process said, to find a new backstop to keep the bank from collapsing. The share sale under discussion, which still may change, is effectively a way for First Republic to gather funds that it won’t have to repay — though in exchange, it would be handing over ownership of part of its business to an outsider.
Many analysts said that investors might see First Republic’s rescue as a short-term fix. Analysts at UBS said on Friday that banking stocks would “truly settle only after the market feels as if there is a longer-term solution” to First Republic’s woes.
First Republic had already been exploring options to save itself. Before the lifeline announced on Thursday, it was working with advisers on a possible sale to a larger rival or a rescue that could include a quick injection of cash to ensure that it had enough to pay out customer withdrawals going forward. The lender had also tried to shore up its finances last weekend with up to $70 billion in emergency loans from the Federal Reserve and JPMorgan.
