First Republic Bank is exploring a possible sale

Widespread panic in the markets engulfed First Republic Bank on Thursday, a devastating blow to a mid-sized lender that until a week ago had been as financially stable as any of its peers.

Shares of First Republic tumbled 20 percent Thursday in the latest twist in a sector that has been in turmoil since the implosion of the Silicon Valley bank.

They are down 60 percent since last Thursday.

The new optimism comes as the bank is exploring aggressive steps, including a possible sale to a larger competitor or a financial rescue, with the matter said.

The moves came despite First Republic’s efforts this weekend to shore up its finances with $70 billion in emergency loans and other liquidity from the Federal Reserve and JPMorgan Chase.

As of Monday, its president, James H. Herbert II, the bank has not said anything publicly about its financial position. told CNBC In an interview, he did not see an unusual number of depositors fleeing. Neither he nor a spokeswoman for the bank responded to requests to confirm the statement or provide a further update.

In a statement on Sunday, the bank said: “First Republic’s capital and liquidity positions are very strong, and its capital is above the regulatory threshold for well-capitalized banks.”

Before Bloomberg News reported First Republic is considering options, including a sale.

Until recently, First Republic was seen as a fast-growing bank. Its customer deposits stood at $176 billion as of January, up from $90 billion three years earlier.

Founded in San Francisco in 1985, First Republic began as a specialty lender with $8 million in jumbo loans to homeowners in the Bay Area. For a brief period beginning in 2007, First Republic was owned by Merrill Lynch, but First Republic was eventually spun off when Merrill was absorbed by a competitor during the 2008 financial crisis.

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Today, it has approximately 85 retail branches in well-served areas such as Los Angeles and the San Francisco Bay Area, New York City, Palm Beach, Boston, and Jackson, Wyo.

Like Silicon Valley Bank, which failed last week, First Republic focuses on wealthy clients, offering personal and business money management services.

According to UBS analysts, it has a “high-touch customer service model” that is known to provide consistent availability to customers in need.

In November 2021, when he was elected to the Bay Area Business Hall of Fame, Mr. Herbert said, “We are very grateful to the Bay Area. It’s a magical, innovative place, and we try to reflect that as best we can.

Similarities with SVB have weighed on Republic since this week, with depositors rushing to withdraw money for fear of a takeover by federal regulators, just like SVB. This is a particularly serious concern at banks serving affluent clients, as bank accounts are typically only insured up to $250,000, putting larger accounts at risk.

Approximately two-thirds of the First Republic’s deposits are above that threshold; At SVB, it was about 93 percent, while at larger banks the figure is usually half that.

When the Federal Deposit Insurance Corp. took over SVB and smaller rival Signature Bank this weekend, it said all depositors, no matter how big their accounts, would be paid out in lump sums.

The First Republic must access government funds as part of an emergency backstop plan created on Sunday to stem the fallout from SVB’s failure.

The First Republic’s challenges include a downgrade of its credit rating by major agencies, making it more difficult and expensive to raise emergency funds. S&P Global Ratings on Tuesday downgraded the bank’s debt to junk status. Moody’s Investors Service, in its own downgrade of the bank earlier this week, warned of First Republic’s high level of potential losses in its investment portfolio – similar to the problems that brought down SVB.

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This means that as depositors withdraw their money, the bank will be forced to sell some of its shares at an immediate loss, threatening the bank’s credit as a whole.

Other US regional banks also faced pressure on Thursday as they battled market volatility. Shares of PacWest Bancorp were down 11 percent by midday, and East West Bancorp was down 5 percent. The biggest US banks, JPMorgan Chase and Bank of America, posted small increases; They are seen as better able to weather the current crisis because they have more diversified deposit bases and are subject to more stringent regulations than their smaller counterparts.

First Republic depositor Farmgirl Flowers of Oakland, Calif., explained in an email to customers why it chose to bank with them.

“At the time I set up the account, a colored woman was running the bank. And I wanted to choose to bank with an organization that is changing what leadership looks like in an underrepresented sector,” wrote founder Christina Stempel.

He added, “While this is not something I plan to change, I now understand that protecting my team and my business means choosing to work with monopolies in this industry, even if their ideals are not the same as mine.”

Stacey Cowley contributed to this report.

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