First Republic on brink as hope fades

Troubled First Republic stood on the brink of receivership last night as its shares spiralled to a record low.

Officials in the United States have been scrambling to orchestrate a rescue by Wall Street’s big banks over recent days.

But prospects for the American lender appear to have dimmed.

Yesterday, news channel CNBC reported that the San Francisco bank was instead most likely to be heading for receivership under the US Federal Deposit Insurance Corporation (FDIC), an industry-funded lifeboat.

That could make it the latest American lender to fall victim to a crisis that has already claimed the scalps of Silicon Valley Bank, Signature and Silvergate – as well as European giant Credit Suisse.

First Republic’s shares were repeatedly suspended yesterday during volatile trading and at one point were down more than 50 per cent. They are down by 97 per cent for the year to date.

It previously received a stay of execution when a consortium of big Wall Street banks agreed to inject £24billion in deposits to prevent a damaging collapse that threatened to create shock waves for the rest of the sector.

But the bank has come under further pressure this week after first quarter results revealed the extent of a customer exodus in which – stripping out the impact of the deposits injected by bigger lenders – £80billion worth of funds were pulled out.

Last night, US officials were coordinating urgent talks to rescue First Republic with a private sector effort – which could see assets sold or the creation of a ‘bad bank’ to hive off toxic assets – yet to come to fruition.

The FDIC, US Treasury and Federal Reserve are among government bodies to have orchestrated meetings with firms in an attempt to come up with a deal. Officials view a private sector deal as preferable to one in which it goes into FDIC receivership.

But CNBC reported that the latter was most likely.

That would see the FDIC assume any losses from assets such as loans and bonds, whose value has fallen as a result of rising interest rates.

The funds would be recouped from the US banks which pay into the FDIC insurance scheme.

A First Republic spokesman said: ‘We are engaged in discussions with multiple parties about our strategic options while continuing to serve our clients.’

Danni Hewson, head of financial analysis at broker AJ Bell, said: ‘The ongoing concern about First Republic is a constant reminder that the sector is under strain and news earlier this week that more than $100billion in deposits had been withdrawn from the bank sent shivers back through markets.

‘Can a deal be done to throw a lifeline to the beleaguered bank? That’s certainly been the hope, but there are big questions about its viability.’

Amid the ongoing turmoil, the Fed last night released a report into its own failures in the build- up to last month’s collapse of SVB. The 114-page dossier concluded that the failure revealed ‘weaknesses in regulation and supervision that must be addressed’, the central bank’s top regulator Michael Barr said.

Regulators shut down the California lender on March 10 after a huge bank run saw £33billion withdrawn in one day.