First Republic Bank is in talks to raise money from other banks or private equity firms by issuing new shares, in a desperate bid to bolster its finances, one day after the biggest U.S. banks gave it a $30 billion infusion, three people with knowledge of the process said.
The terms of any deal are still under discussion, two of the people said. A full sale of the bank is also possible, one of the people said. The bank’s market value shrunk to $4 billion on Friday from around $22 billion at the beginning of March.
A representative of First Republic declined to comment.
The efforts by First Republic show how swiftly the troubles of one lender — Silicon Valley Bank, which collapsed last week — have spread to the wider market. The balance sheets of many banks similar to Silicon Valley Bank have come under intense scrutiny by unsettled investors looking for potential financial holes, while depositors, worried that their money is not safe, have moved it elsewhere.
Shares of First Republic enjoyed a brief respite after an announcement on Thursday by JPMorgan Chase, Bank of America, Wells Fargo and Citigroup, along with seven other prominent banks, that they would inject $30 billion into the beleaguered lender to stave off financial ruin. But by Friday morning, the midsize lender’s shares plummeted again.
That $30 billion amount is effectively a gigantic deposit, much like how everyday customers and businesses park their money in a bank. That money is meant to help First Republic meet short-term obligations. By comparison, raising money by issuing shares will allow the bank to strengthen the underlying business and bolster its ability to handle losses.
Many analysts said that investors might see First Republic’s rescue as a short-term fix. Analysts at UBS said that banking stocks would “truly settle only after the market feels as if there is a longer-term solution” to First Republic’s woes.
First Republic had already been exploring options to save itself. Before the lifeline announced on Thursday, it was working with advisers on a possible sale to a larger rival or a rescue that could include a quick injection of cash to ensure that it had enough to pay out customer withdrawals going forward. The lender had also tried to shore up its finances last weekend with up to $70 billion in emergency loans from the Federal Reserve and JPMorgan.