First Republic Bank shares plunge as it weighs $100bn asset sale to shore up balance sheet

First Republic Bank is exploring divesting as much as $100 billion (€91 billion) of long-dated securities and mortgages as part of a broader rescue plan, according to people with knowledge of the matter.

Any sales would help reduce the bank’s asset-liability mismatch, the people said, asking not to be identified discussing confidential information. Potential buyers, including large US banks, could potentially receive warrants or preferred equity as an incentive to buy assets above their market value, one of the people said.

The lender is trying to shore up its balance sheet to avoid being seized by the Federal Deposit Insurance Corp. and clear the path for a possible capital raise, the person said. It may need the US government to facilitate negotiations with some of the country’s largest banks to stabilise the lender as it executes its turnaround, the person added. That would be a much cheaper alternative than a failure of the company.

A spokesman for the San Francisco-based firm declined to comment.

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First Republic fell as much as 30 per cent Tuesday after reporting a bigger-than-expected drop in deposits in the first quarter. The figure fell to $104.5 billion, well below the $137 billion average of analyst estimates. The total included a $30 billion infusion from 11 of the largest US lenders.

The bank on Monday confirmed it’s exploring strategic options. “We are working to restructure our balance sheet,” chief financial officer Neal Holland said in a statement.

Earlier, First Republic executives did not take questions during its earnings call, sending shares to an all-time low in intraday trading as analysts parse a challenging quarter without additional details from management.

At least six analysts have suspended their ratings or coverage of the stock, with two cutting it to sell Tuesday. The San Francisco-based bank had no immediate comment, spokesman Greg Berardi said.

“Unfortunately, we were disappointed that the company did not set aside time for Q&A on the conference call, leaving many questions unanswered,” Piper Sandler analysts Andrew Liesch and Michael Hultquist wrote in a note. The two maintained their neutral rating on the stock.

First Republic’s earnings report marked its first detailed update since investors retreated in mid-March from a swath of regional lenders. In recent weeks, rivals including KeyCorp, East West Bancorp and Bank OZK all reported quarterly deposit figures that met or topped analysts’ estimates.

“The conference call did not go well,” Chris Marinac, an analyst at Janney Montgomery Scott, said on Tuesday. His firm was one of the two that downgraded First Republic after it reported results. “I think the market didn’t like the lack of questions.”

Monday’s aftermarket conference call lasted 12 minutes and 9 seconds. Chief Executive Officer Mike Roffler detailed plans to shrink the balance sheet and cut expenses by reducing headcount by as much as 25 per cent after the bank shed $72 billion in deposits in the first quarter.

Before Roffler spoke, investor-relations head Mike Ioanilli said the bank was withdrawing all previous guidance and wouldn’t hold the typical question-and-answer session during the call.