First Republic says it plans to sell off assets, restructure its balance sheet, and lay off staff
Shares in First Republic Bank plunged another 30% on Wednesday following a wipeout one day previously, after the struggling US lender revealed that depositors had withdrawn more than $100 billion in the first quarter.
The bank’s stock dropped 49% on Tuesday after the San Francisco-based lender disclosed that it had lost 40% of its deposits, fueling fears of further bank collapses in the US.
The concerns follow the failures of Silicon Valley Bank and Signature Bank in March, leaving the US banking sector facing its biggest crisis of confidence since the 2007-2008 financial crash.
“Investors got a sharp reminder on Tuesday that the US banking crisis and broader credit crunch are not over,” the chief US economist at Gavekal Research, Will Denyer, commented.
First Republic is considering “strategic options” to raise capital and avoid being seized by US regulators, according to media reports. A source familiar with the matter told Yahoo Finance that a bailout plan would require assistance from the US government.
“There is an open bank path solution here, but it’s a matter of the government needing to convene to bring all the parties together to make it happen,” he said.
The recovery plan will reportedly include the sale of unprofitable assets and laying off up to a quarter of the lender’s workforce of about 7,200 employees.
However, media reports have highlighted questions surrounding First Republic’s future as an independent lender or possibly as part of a bigger bank.
Christopher Wolfe, head of North American banks at Fitch Ratings, said any potential buyer of First Republic would be looking at a big write-down in the value of the lender’s assets.
“The options are very challenging and probably very costly, especially for shareholders,” Wolfe told Reuters. “Who’s going to bear the cost?”
According to CNBC, advisers for the troubled lender will try to persuade some of the 11 banks that provided a $30 billion rescue package last month to buy First Republic’s underwater bonds at above-market rates for a loss of several billion dollars.
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April 27, 2023 at 04:48PM