First Republic works on plan to prevent government seizure

First Republic’s advisers are working on a private-sector solution they hope can overcome scepticism in Washington and keep the embattled California bank from being shut down by the Federal Deposit Insurance Corporation.

Three people close to the situation said there had been a shift in tone among the bank’s advisers compared with Tuesday and Wednesday when First Republic’s shares fell 65 per cent and fears grew that it was close to being taken over by the Federal Deposit Insurance Corporation (FDIC).

JP Morgan, which has been acting as First Republic’s banker and is the largest US lender, is involved in the conversations, but other large institutions are also likely to participate in some way.

Crucially, the plan had not yet won the backing of officials in the Biden administration, who would be the ultimate arbiter of whether the bank can avoid FDIC seizure, people close to the situation said.

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The White House, US treasury and FDIC declined to comment.

In March, when First Republic began to suffer outflows, Jamie Dimon, JP Morgan’s chief executive, helped organise a stabilisation effort that saw his institution, Citi, Bank of America and eight other banks join together to deposit $30 billion (€27.3 billion) with the lender.

First Republic, JP Morgan and Lazard, which is also working for the California lender, declined to comment.

First Republic’s share price has dropped by 95 per cent since it was caught up in the regional banking frenzy sparked by the collapse of Silicon Valley Bank. Its shares closed up 8.8 per cent on Thursday.

The conversations about the bank remain fraught, and people familiar with the situation cautioned that it was not clear that a solution would be found. The banks are reluctant to put their shareholders at risk of losses without some sort of government participation.

It was still quite possible that First Republic could end up in FDIC hands, sources said.

First Republic has seen depositors pull out $100 billion since the start of the year, and its loan book has suffered paper losses as interest rates have risen. It has promised to cut staff by 25 per cent to control costs.

One proposal that may be part of an eventual solution is for some of the banks to buy some of First Republic’s long-dated assets for more than their current market price, allowing the lender to shrink its losses.

But people familiar with the situation say that this would probably not be enough to stabilise First Republic on its own. – Copyright The Financial Times Limited 2023