First Republic Rescue May Rely on U.S. Backing to Reach a Deal

Wall Street leaders and U.S. officials discussing an intervention at First Republic Bank are exploring the possibility of government backing to encourage a deal that would shore up the lender, people with knowledge of the situation said. The shares dropped Wednesday morning.

The group has floated a variety of measures to make the company more attractive to potential investors or a buyer, part of an effort to ensure there isn’t another US bank failure, the people said, asking not to be named describing confidential talks.

Among options, the government could play a role in lifting assets out of First Republic that have eroded its balance sheet. While investors have expressed interest in helping, the firm’s unrealized losses have been a sticking point. Additional ideas have included offering liability protection, applying capital rules more flexibly or easing limits on ownership stakes, the people said.
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The talks are continuing. A variety of issues remain unresolved and an agreement isn’t guaranteed, the people said. It’s unclear how the government would provide any financial support.

A White House spokesperson referred questions to banking regulators. Representatives for the Federal Reserve, Treasury Department and First Republic declined to comment, and the FDIC didn’t respond to requests for comment.

The lender’s shares fell 6.9% at 9:38 a.m. in New York.

First Republic, a San Francisco-based lender known for catering to wealthy tech executives, has lost 88% of its stock market value this year as customers pulled their money, pressuring the bank to sell assets that had declined in value amid interest-rate hikes. An attempt by 11 stronger banks to shore up the firm by depositing $30 billion last week gave the company and advisers including JPMorgan Chase & Co. more time to find a way to resolve the strains.

The Federal Deposit Insurance Corp. already took over SVB Financial Group’s Silicon Valley Bank and New York-based Signature Bank, prompting regulators to take the unusual step of covering uninsured deposits after banks failed.

Treasury Secretary Janet Yellen said earlier Tuesday that the US could take additional extraordinary actions if other small lenders are threatened. The government “is resolutely committed” to mitigating financial-stability risks where necessary, she said. “The public should have confidence in our banking system.”

— With assistance from Christopher Condon, Katanga Johnson, Hannah Levitt, Justin Sink, Dan Reichl and Gillian Tan.