First Republic's urgent rescue effort is led by U.S. officials

Officials from the U.S. are coordinating urgent efforts to rescue First Republic Bank (FRC.N), despite the fact that private-sector efforts led by the bank's advisers have yet to reach a deal, according to three sources briefed on the situation.

Government agencies such as the Federal Deposit Insurance Corporation (FDIC), the Treasury Department and the Federal Reserve have in recent days been organizing meetings with financial institutions to discuss the possibility of putting together a lifeline for the troubled lender in order to save it.

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One of the sources stated that even though the government has been in contact with First Republic and its advisers for weeks, its new involvement is helping to bring in more parties to the negotiating table, such as banks and private equity firms.

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The U.S. government has not indicated whether it will participate in the rescue of First Republic by the private sector, as it could be possible. However, the government's involvement has helped embolden First Republic executives as they scramble to put together a deal that would avoid a takeover by U.S. regulators, according to one of the sources.

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The bank became the epicenter of the regional banking crisis in March after the wealthy clients that it had courted to fuel its breakneck growth started withdrawing their deposits, leaving it in a state of shock and disarray.

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The stock of the lender was up 3.8% on Friday.

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Two of the sources said that a deal between First Republic and the private sector would be preferable to a potential FDIC receivership of the company.

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Although the sources added that a number of the options that were proposed - including the sale of assets or the creation of a "bad bank" which would isolate the bank's underwater assets - have so far failed to yield a successful solution.

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Any solution that is offered would have to include a plan to cover the losses the First Republic or a potential acquirer of the bank would have to bear in case of a merger or acquisition. There is a likelihood that the First Republic is going to suffer losses as a result of a rise in interest rates affecting its loan book and fixed-income portfolio because its low-yielding assets will be marked down to reflect this change.

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The best chance the First Republic has of being rescued is through the creation of a special-purpose vehicle that could carve out some of the lender's assets for other banks to buy, according to two sources familiar with the discussions.

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First Republic hopes U.S. officials can convince banks to participate in the deal or provide some kind of government backstop to ensure a deal is successful as banks have been reluctant to buy these assets at a market discount, one of the sources said.

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In order to protect the confidentiality of the discussions, the sources have requested anonymity.

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"First Republic is engaged in conversations with multiple parties about our strategic options while at the same time continuing to provide our clients with the best possible service," the company said in a statement.

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Neither the Treasury Department nor the Federal Reserve nor the FDIC would comment on the matter.

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There have been numerous efforts made by Wall Street banks to find a solution for First Republic since 11 of the biggest U.S. lenders deposited $30 billion at the bank on March 16 to stanch a regional banking crisis that led to the collapse of Silicon Valley Bank and Signature Bank.

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This week, the discussions regarding a possible deal took on a new urgency after the First Republic revealed on Monday that it had experienced deposits outflows of more than $100 billion in the first quarter of this year. The bank has said that its deposits have stabilized, but it also revealed that it is losing money due to the fact that it has had to replace the withdrawn deposits with interest-bearing funding from the Federal Reserve in order to stay afloat.

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One of the sources said that First Republic is considering major losses for its shareholders, as part of its plan to protect it from being taken over by U.S. regulators by offering a major hit to its shareholders, and even a total loss for shareholders. After the regional banking crisis began on March 8, the value of First Republic shares has plummeted by 95% since then.

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Sources have said that no decision on the way forward has been made and that no deal is certain at this time.