First Republic Slides as Big Banks Said to Discuss Support

(Bloomberg) — First Republic Bank’s tumultuous churn lower continued Thursday, as the San Francisco-based bank is said to be exploring strategic options that include a sale and larger lenders are reportedly in talks to bolster the bank.

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Shares sank 20% as of 11:54 a.m. in New York, after dropping as much as 36%. That extends a slide that had already erased more than $17 billion off First Republic’s market capitalization this month, with wild price swings drawing multiple exchange halts for excess volatility.

Late Wednesday, Bloomberg News reported First Republic was said to weigh options including a sale, and was also exploring options for shoring up liquidity, according to people familiar with the matter.

Several large banks, including JPMorgan Chase & Co., are considering a joint rescue of the bank that could include a possible capital infusion to shore up the lender, the Wall Street Journal reported Thursday, citing people familiar. A deal could be unveiled as soon as Thursday, the people said.

“Normally, a headline of a potential sale would support the stock,” Christopher McGratty, an analyst at Keefe, Bruyette and Woods, wrote in a Thursday morning note. “However, the potentially significant deposit outflows post-SIVB failure likely leave FRC in a tough spot.”

“Any potential sale would likely be a tough outcome for existing shareholders, given mark-to-market accounting on loans,” McGratty wrote.

Investors across the banking space are on tenterhooks amid the upheaval in US regional lenders as well as the tumult surrounding Credit Suisse Group AG. Shares of the Swiss bank rebounded Thursday after it opened a $54 billion line of credit with the country’s central bank and offered to buy back debt. The European Central Bank delivered a planned half-point hike in interest rates on Thursday.

On Wednesday, First Republic shares sank 21% as its credit rating was cut to junk by S&P Global Ratings and Fitch Ratings. The bank said Sunday that its total available unused liquidity to fund operations was more than $70 billion, from agreements that included the Federal Reserve and JPMorgan Chase & Co.

First Republic specializes in private banking and wealth management, and has tried to differentiate itself from Silicon Valley Bank.

Several regional bank peers were churning as well. PacWest Bancorp was 14% lower, and Western Alliance Bancorp erased a drop that earlier reached 16%.

“First Republic’s options have narrowed following deposit outflow, a sharp share-price decline and recent downgrades from ratings agencies, while a potential sale of the bank could center on the attractive wealth-management business,” Herman Chan, an analyst at Bloomberg Intelligence, wrote in a Wednesday evening note.

–With assistance from Maxwell Zeff.

(Updates with potential support from banks in fourth paragraph)

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