Deal For First Republic Rescue May Depend On US Support

There is a possibility of government backing for a deal that could bolster First Republic Bank's finances, according to people familiar with the situation, who say they are working on the possibility of pursuing an intervention. Shares of the lender fell as early as Wednesday morning as Wall Street leaders discuss the intervention.

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As part of an effort to ensure that there isn't another failure of a US bank, the members of the group have floated a variety of measures to improve the company's appeal to potential investors or buyers, the people said, asking not to be named in order to discuss confidential discussions. 

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While investors have expressed interest in helping First Republic, investors' concern about its unrealized losses has caused investors to remain reluctant to offer assistance. One option could be for the government to assist First Republic in lifting assets out of its balance sheet. A number of other ideas were put forth, including offering liability protection to investors, flexibly applying capital rules, or easing ownership stake limits, according to the individuals.

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People who attended the talks said that a number of issues have yet to be resolved, and it is unclear whether an agreement is guaranteed since it is unclear how the government will support the process.

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In a statement referring to banking regulators, a White House spokesperson pointed out that the Federal Reserve, Treasury Department, First Republic, and the FDIC declined to comment, while the Federal Deposit Insurance Corporation did not respond to inquiries.

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As of 9:38 a.m. in New York, shares of the lender fell by 6.9%.

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As a result of its reputation as catering to wealthy tech executives, First Republic, a San Francisco-based lender, has lost 88% of its stock market value this year as customers have pulled their money from the bank, forcing the bank to sell assets that have fallen in value in the wake of interest rate hikes. The company and advisers, including JPMorgan Chase & Co., were given more time to resolve the strains by the effort by 11 stronger banks to shore up the firm last week, which saw them deposit $30 billion.

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In the case of SVB Financial Group's Silicon Valley Bank and New York-based Signature Bank, the Federal Deposit Insurance Corp. has already taken over the two banks, resulting in regulators taking the unusual step of covering uninsured deposits after the failed banks fell under its umbrella.

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According to Treasury Secretary, Janet Yellen, if other small lenders are threatened by the US government, the US could take additional extraordinary actions. It is the responsibility of the government to take steps to mitigate the financial stability risks, she said. Our banking system should be trusted by the public.