First Republic Most Doubtless Heading For FDIC Administration, Sources Say; Shares fall 40%

People walk in front of a First Republic Bank branch on March 20, 2023 in New York City.

Gary Hershorn | Corbis News | Getty Images

shares of First Republic fell sharply on Friday as hopes of a bailout deal that could keep the bank afloat faded.

Sources told CNBC’s David Faber that the most likely outcome for the troubled bank is for the Federal Deposit Insurance Corporation to declare it bankrupt. The stock slipped about 40% and was halted multiple times due to volatility.

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First Republic shares fell sharply on Friday.

The stock is down more than 90% this year as investors lost confidence in the bank after two regional lenders failed in March.

Other banks are being asked by the FDIC about possible bids for First Republic if the bank is seized by the regulator, sources told Faber. According to these sources, there is still hope for a solution that does not involve receivership.

First Republic told Faber on Friday that “we are in discussions with multiple parties about our strategic options while continuing to serve our customers.”

CNBC reported Wednesday that First Republic advisors were preparing to propose to larger banks a plan that would allow the regional lender to sell bonds and other assets at above-market rates and then raise equity. The sales would result in a loss for the banks buying the bonds, but could be cheaper in the long run than leaving the bank bankrupt and being seized by regulators.

Reuters reported Friday that US officials — including the FDIC, Treasury Department and Federal Reserve — are coordinating meetings with other banks to negotiate a rescue plan for the First Republic.

Shares of First Republic closed at $16 on Monday before the bank released its first-quarter results, which showed deposits down about 40%. The stock fell more than 60% over the next two days to hit a new all-time low.

First Republic is a regional bank that has focused on high net worth individuals and their businesses, including offering low-interest mortgages to these customers.

Those mortgages, as well as other long-term assets on the bank’s balance sheet, have fallen in market value since the Fed began raising rates last year, leading investors to worry that the bank would face a sizeable loss if it was forced to sell those assets sell to raise cash.

The bank’s massive deposit outflows followed the collapse of Silicon Valley Bank and Signature Bank in March. The country’s largest banks, including JPMorgan Chase, have since lent First Republic $30 billion in term deposits.

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