US Officials Lead Emergency Rescue Negotiations for First Republic – Sources

NEW YORK, April 28 (Reuters) – U.S. officials are coordinating emergency talks to rescue First Republic Bank ( FRCN ) as private sector efforts led by the bank’s advisers have yet to reach a deal, three sources familiar with the situation said. .

The Federal Deposit Insurance Corporation (FDIC), the Treasury Department and the Federal Reserve are among government agencies that have in recent days begun planning meetings with financial institutions about a solution to the troubled lender, sources said.

While the government has been in touch with First Republic and its advisers for several weeks, its new engagement helps bring more parties to the negotiating table, including banks and private equity firms, one of the sources added.

It is unclear whether the US government is considering participating in a private sector bailout of the First Republic. However, the government’s involvement has emboldened First Republic executives as they struggle to put together a deal that avoids a takeover by U.S. regulators, one of the sources said.

First Republic became the epicenter of the US regional banking crisis in March after wealthy customers fueling its poor growth began withdrawing deposits and boycotting the bank.

U.S. officials consider a private-sector deal preferable to the first Republic falling into FDIC receivership, two of the sources said.

But several options proposed – including selling assets or creating a “bad bank” that would isolate its underwater assets – have so far failed to deliver a deal, the sources added.

Any settlement should come with protection against losses. These losses will stem from First Republic’s loan book and fixed-income portfolio, with its low-yielding assets accounting for increases in interest rates.

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The deal structure, which is First Republic’s best chance to rescue, is a special-purpose vehicle that carves out some of the lender’s assets for other banks to buy, two sources familiar with the discussions said.

Banks are reluctant to buy these assets at a market discount, and First Republic hopes U.S. officials can get them to participate or provide some form of government backing for a deal, one of the sources said.

CNBC reported on Friday, citing sources, that government talks are now focused on preparing the First Republic to enter FDIC receivership, and that such an outcome is likely. In receivership, an FDIC fund would assume losses incurred by taking First Republic’s underwater assets. The FDIC will recover those losses from all banks participating in its insurance program without harming American taxpayers.

The sources requested anonymity because the discussions are confidential.

“While continuing to serve our customers, we are engaged in discussions with several parties regarding our strategic options,” First Republic said in a statement.

The Treasury Department, the Federal Reserve and the FDIC declined to comment.

Since Friday, Republic shares have traded down 30% to $4.31.

Wall Street banks have been scrambling to find a solution for the First Republic since 11 of the biggest U.S. lenders deposited $30 billion into the bank on March 16 to ease a regional banking crisis that led to the failure of Silicon Valley Bank and Signature Bank.

Discussions for a deal took on new urgency this week after the First Republic on Monday revealed more than $100 billion in deposit outflows in the first quarter. Although the bank said its deposits had stabilized, it disclosed that it was losing money because it had to replace withdrawn deposits with interest-bearing funds from the Federal Reserve Bank.

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First Republic is considering a big hit, and even a total loss for shareholders, as part of options to keep U.S. regulators from taking it over, one of the sources said. First Republic shares have lost 95% of their value since the regional banking crisis began on March 8.

Reporting by Andrea Shalal in Washington and Nubur Anand in New York; Additional reporting by David French; Editing by Lananh Nguyen, Megan Davies and Gerry Doyle

Our Standards: Thomson Reuters Trust Principles.

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