First Republic Bank is in talks to raise money from other banks or private equity firms by issuing new shares in a desperate bid to shore up its finances, a day after the biggest U.S. banks gave it a $30 billion infusion, three people with knowledge of the process said.
The terms of any deal are still being discussed, the two people said. A full sale of the bank is also possible, one of the people said. The bank’s market value fell to $4 billion on Friday from about $22 billion in early March.
A representative of the First Republic refused to comment.
First Republic’s efforts show how quickly the troubles of one lender — the Silicon Valley bank that collapsed last week — spread to the broader market. The balance sheets of many Silicon Valley Bank-like banks have come under intense scrutiny from unsettled investors looking for potential funding holes, while depositors worried their money is not safe have moved it elsewhere.
Actions from The First Republic after JPMorgan Chase, Bank of America, Wells Fargo and Citigroup, along with seven other prominent banks, enjoyed a brief reprieve on Thursday that they would inject $30 billion into the embattled lender to stave off financial meltdown. However, shares of the mid-sized lender fell again on Friday morning.
This $30 billion is actually a gigantic deposit, similar to how everyday customers and businesses park their money in the bank. This money is intended to help the First Republic meet short-term obligations. By comparison, raising money by issuing shares will allow the bank to strengthen its core business and strengthen its ability to handle losses.
Many analysts said investors could view the rescue of the First Republic as a short-term fix. Analysts at UBS said banking stocks “will only really recover once the market feels there is a longer-term solution” to the First Republic’s woes.
Already the first republic was exploring the possibilities of how to save itself. Before the lifeline announced on Thursday, it was working with advisers on a possible sale to a larger rival or a rescue that could involve a quick injection of cash to ensure it has enough to pay customer withdrawals in the future. The lender also tried last weekend to shore up its finances with emergency loans of up to $70 billion from the Federal Reserve and JPMorgan.