NEW YORK, April 28 (Reuters) – U.S. officials are holding urgent talks to save First Republic Bank ( FRC.N ) as private sector efforts led by the bank’s advisers have yet to reach an agreement, according to three sources familiar with the situation. .
The Federal Deposit Insurance Corporation (FDIC), the Treasury Department and the Federal Reserve are among the government bodies that in recent days have begun orchestrating meetings with financial companies about putting together a lifeline for troubled lender, sources said.
While the government has been in contact with First Republic and its advisers for several weeks, its new involvement helps bring more parties, including banks and private equity firms, to the negotiating table, added one of the sources.
It is unclear whether the US government is considering participating in a private sector rescue of the First Republic. The government’s engagement, however, has emboldened First Republic executives as they scramble to put together a deal that would avoid a takeover by US regulators, one of the sources said.
First Republic was at the center of a US regional banking crisis in March after the wealthy clients it courted to fuel its explosive growth began withdrawing deposits and left the bank thirsty.
The lender’s stock rose 3.8% on Friday after a Reuters report on government-coordinated talks.
US officials view a private sector deal as preferable to the First Republic falling into FDIC receivership, two of the sources said.
But many of the options proposed – including the sale of assets or the creation of a “bad bank” that would separate the underwater assets – have so far failed to yield a deal, the sources added.
Any solution would have to include coverage for First Republic’s losses or a potential acquirer bank would assume if there was a transaction. These losses will come from First Republic’s loan book and fixed-income portfolio, whose low-yielding assets will be marked for rising interest rates.
The deal structure that has the best chance of saving First Republic is a special purpose vehicle that would carve up some of the lender’s assets for other banks to buy, two sources familiar with the discussions said.
Banks are reluctant to buy these assets at a market discount, and First Republic hopes U.S. officials can convince them to participate or provide some kind of government backstop for a deal, one of the people said. in the sources.
The sources requested anonymity because the discussions are confidential.
“We are engaged in multi-party discussions regarding our strategic options while continuing to serve our clients,” First Republic said in a statement.
The Treasury Department, Federal Reserve and FDIC declined to comment.
Wall Street banks have been trying to find a solution for First Republic since 11 of the largest US lenders deposited $30 billion into the bank on March 16 to stem the regional banking crisis that led to the failure of Silicon Valley Bank and Signature Bank.
Discussions for a deal took on new urgency this week after First Republic announced Monday that it had deposit outflows of more than $100 billion in the first quarter. Although the bank said its deposits had stabilized, it disclosed that it was losing money because it had to replace withdrawn deposits with interest-bearing funding from the Federal Reserve.
First Republic is considering a big hit, and even a total loss for shareholders, as part of the options to keep US regulators from taking it over, one of the sources said. First Republic shares have lost 95% of their value since the regional banking crisis began on March 8.
No decision on a way forward has been made and no deal is certain, the sources said.
Reporting by Andrea Shalal in Washington and Nupur Anand in New York; additional reporting by David French; editing by Lananh Nguyen, Megan Davies and Gerry Doyle
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