First Republic shares continue to fall with no end in sight

The US lender’s attempts to sell assets to private sector bidders fail to attract recriminationsShares in First Republic dropped almost 30 per cent on Wednesday as regulators, big banks and potential bidders for its assets all held back from stepping in to help the San Francisco-based lender.

First Republic has started to recriminate in private after its frantic attempts to sell assets in order to close a hole in the balance sheet failed.

People close to the situation say that government officials are waiting for a solution from the private sector to come to fruition, while big banks are unwilling to accept either the short-term loss on asset purchases, or the long-term headaches of dealing with First Republic’s issues.

First Republic is under pressure due to the outflow of deposits since the queues that formed outside its branches on March 9, after Silicon Valley Bank failed.

The value of the large mortgage loan book at the bank has declined as interest rates increased. Wealthy customers were worried that the Federal Deposit Insurance Corporation would not cover their deposits if they had to save the bank.

The shares of the bank have dropped 95 percent this year. The shares briefly stabilized in late March, after 11 large banks gave the bank $30bn of deposits. However, they resumed their fall this week when First Republic announced that customers had withdrawn more than 100bn in deposit due to the turmoil in banking.

A potential bidder said that a normal sale of the assets was unlikely, as it would require a discount so large to book value to worsen First Republic’s losses.

A proposal was floated that would allow large US banks to buy assets from First Republic above market rates. The banks would suffer small losses but avoid paying the FDIC fees if they were to fail and have to be rescued.

A person who was present at the conversation said, “This is an option but there’s no guarantee that it will be implemented.”

He and another person claimed that banks would not take losses until government officials twisted their arm or offered incentives.

Officials at the FDIC or Federal Reserve have not held formal discussions nor pushed a specific plan.

The FDIC refused to comment.

People close to First Republic have said that the company’s executives are looking for what they call an “open bank” solution. This is essentially a sale of assets to allow it to continue operating.

They worry, however, that some large banks and buyers may think that they will benefit more from a closed-bank deal. This is a deal that occurs after the FDIC has taken over a bank.

People close to First Republic believe that some big banks paint a grimmer picture of their future than is necessary.