New YorkCNN —
First Republic Bank, facing a crisis of confidence from investors and customers, is actively discussing options for a lifeline — including a takeover, according to the Wall Street Journal.
Participating in the discussions Thursday are massive Wall Street banks, including JPMorgan and Morgan Stanley, the Journal reported. A First Republic spokesman declined to comment to CNN.
Both Fitch Ratings and S&P Global Ratings downgraded First Republic Bank’s credit rating on Wednesday on concerns that depositors could pull their cash from the bank. That sent shares plunging 26% Thursday, and the stock tripped several automatic circuit breakers designed to prevent shares from crashing.
First Republic’s problems reflect continued worries about the banking system in the aftermath of the collapse of Silicon Valley Bank and Signature Bank.
Many regional banks, including First Republic, have large amounts of uninsured deposits above the $250,000 FDIC limit. Although not close to SVB’s massive percentage of uninsured deposits (94% of its total), First Republic has a sizable 68% of total deposits that are uninsured, according to S&P Global.
That led many customers to exit the bank and put their money elsewhere, creating a problem for First Republic: It has to borrow money or sell assets to pay customers their deposits in cash.
To mank money, banks use a portion of customers’ deposits to give out loans to other customers. But First Republic has an unusually large 111% liability to deposit ration, S&P Global says. That means the bank has lent out more money than it has in deposits from customers, making it a particularly risky bet for investors.
The Federal Reserve created a loan system designed to prevent regional banks from failing after SVB collapsed. The facility will allow banks to give the Fed their Treasury bonds as collateral for one-year loans. In return, the Fed will give banks the value that the banks paid for the Treasuries, which have plunged in the past year as the Fed has hiked interest rates.
That extraordinary federal intervention appears to have been insufficient to keep investors satisfied.
First Republic on Sunday announced a deal with JPMorgan to gain fast access to cash if needed, and the bank then said it had $70 billion in unused assets that it could quickly use to pay customers’ withdrawals if needed.
On Thursday, as shares plunged, First Republic realized it needed more help, the Journal said. But a deal remains far from certain.
This article was originally published by CNN.
