Before the stock markets opened on Monday, regulators searched for a solution to First Republic Bank’s problems over the weekend.
Since the failure of Silicon Valley Bank and Signature Bank in early March, the First Republic, based in San Francisco, has struggled as investors and depositors have grown increasingly concerned that the bank may not survive as an independent entity for very long.
The bank’s stock fell to $3.51 on Friday from around $170 per share it had been trading for a year earlier.
President Donald Trump’s senior economic advisor Gary Cohn stated on CBS News’s “Face the Nation” on Sunday that the Federal Deposit Insurance Corporation “would prefer to sell the bank in its entirety than any other scenario.”
“What will most likely happen is the FDIC will seize control and then simultaneously resell the asset to the successful bidder,” said Cohn.
Compared to what transpired with Silicon Valley Bank, Cohn said he anticipates a “much faster process” in this case.
As of March 31, First Republic reported having $233 billion in total assets. The Federal Reserve classified the First Republic as the 14th largest commercial bank in the United States at the end of the previous year.
First Republic possessed a banking franchise that was the envy of most of the industry before Silicon Valley Bank went under.
Its clientele, who were mainly wealthy and powerful, hardly ever missed their loan payments. The 72-branch bank has named the CEO of Meta Platforms among those who have benefited from low-cost loans to the wealthy.
First Republic saw its total assets more than double from $102 billion at the end of the first quarter of 2019, when it had 4,600 full-time employees, thanks to deposits from the wealthy.
However, the vast majority of First Republic’s deposits were uninsured, which is to say that they exceeded the $250,000 FDIC insurance cap, just like those in Silicon Valley and Signature Bank. And as a result, experts and investors became more concerned about the franchise.
Depositors of First Republic would be at risk of not getting all of their money back in the event of a failure.
Recent quarterly reports from the bank encapsulated these worries. The bank said that during the crisis in April, depositors withdrew more than $100 billion from the bank. First Republic is situated in San Francisco.
The First Republic has been looking for a strategy to recover fast ever since the catastrophe.
The bank had plans to sell off underperforming assets, including the low-interest mortgages it had given to affluent customers.
Additionally, it disclosed plans to fire up to 25% of its workforce, which at the end of 2022 numbered about 7,200 people.
Investors, though, are still pessimistic. Since the bank reported its results, its executives have declined all requests for interviews from analysts or investors, which has caused the stock to fall even more.
And when a company must quickly sell off assets and has fewer bankers to find opportunities for the bank to invest in, it is difficult to restructure a balance sheet profitably.
After the world financial crisis 15 years ago, it took years for banks like Citigroup and Bank of America to become profitable again, and those banks benefited from a government-sponsored backstop to keep them operating.
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