First Republic, Latest Bank in Turmoil, Explores Potential Sale

The widespread panic in markets came close to engulfing First Republic Bank on Thursday, a harrowing shot to a midsize lender that until a week ago appeared as financially stable as any of its peers.

In the latest whirl to a sector that has been in turmoil since Silicon Valley Bank imploded, First Republic shares plummeted 20 percent Thursday, reflecting renewed worries that it could be the next bank to fail, then dramatically shot back up.

They are down 60 percent since last Thursday.

The new hope seemed to stem from the bank’s exploration of extreme measures, including a possible sale to a larger rival or a financial rescue that could include a quick injection of new cash to ensure it has enough money to pay out customer withdrawals, a person familiar with the matter said.

The moves came despite earlier efforts this weekend by First Republic to shore up its finances with $70 billion in emergency loans and other liquidity from the Federal Reserve and JPMorgan Chase.

The bank hasn’t said anything publicly about its financial position since Monday, when its chairman, James H. Herbert II, told CNBC in an interview said that it was not seeing an unusual number of depositors flee. Neither he nor a bank spokesman have responded to requests to reaffirm that statement or provide a further update.

In a statement Sunday, the bank said: “First Republic’s capital and liquidity positions are very strong, and its capital remains well above the regulatory threshold for well-capitalized banks.”

Bloomberg News earlier reported that First Republic was considering options including a sale.

Until recently, First Republic was seen as a fast-growing bank. Its customer deposits totaled $176 billion as of January, up from $90 billion just three years ago.

Founded in 1985 in San Francisco, First Republic began as a specialized lender with $8 million that made jumbo loans to homeowners in the Bay Area. For a brief period beginning in 2007, First Republic was owned by Merrill Lynch, but when Merrill was absorbed by a rival during the 2008 financial crisis, First Republic was eventually spun off.

Today, it has some 85 retail branches in well-to-do areas like Los Angeles and the San Francisco Bay Area, New York City, Palm Beach, Boston and Jackson, Wyo.

Like Silicon Valley Bank, whose failure last week set off panic, First Republic focuses on wealthy clients offering personal and business money-management services.

It has a “high-touch customer service model,” according to UBS analysts, who note that it is known for providing constant availability to demanding clients.

In November 2021, as he was elected into the Bay Area Business Hall of Fame, Mr. Herbert said, “We owe a great deal of gratitude to the Bay Area. It’s a magical, innovative place and we try to reciprocate it as best we can.”

The similarities to SVB have weighed on First Republic this week, with depositors rushing to take out cash in fears that it, like SVB, will be taken over by federal regulators. That’s a particularly acute worry at banks that cater to a wealthier clientele, since bank accounts are normally federally insured only up to $250,000, leaving larger accounts at risk.

Roughly two-thirds of First Republic’s deposits are above that limit; at SVB, around 93 percent were, while at larger banks the figure is typically around half.

When the Federal Deposit Insurance Corporation seized SVB and a smaller rival, Signature Bank, this weekend, it said that all depositors would be paid out in whole, no matter how large their accounts.

First Republic should have access to government funding as part of an emergency backstop program created on Sunday to stem the fallout from the failure of SVB.

First Republic’s challenges were heightened by downgrades to its credit rating by the major agencies, which would make it more difficult and expensive to raise emergency funds if it needs to do so. S&P Global Ratings slashed the bank’s credit to junk levels on Tuesday. Moody’s Investors Service, in its own downgrade of the bank earlier this week, warned of First Republic’s high level of potential losses in its investment portfolio — similar to the issues that toppled SVB.

That means that as depositors withdraw their money, the bank would be forced to sell off some of its holdings at an immediate loss, threatening the bank’s solvency overall.

Other U.S. regional banks that have battled market turmoil also faced pressure on Thursday. Shares of PacWest Bancorp were down 11 percent around midday, and East West Bancorp fell 5 percent before recovering to around flat. The biggest banks in America, like JPMorgan Chase and Bank of America, posted small increases; they are seen as relatively more able to weather the current crisis because they have more diversified deposit bases and are subject to more stringent regulations than their smaller peers.

One First Republic depositor, Farmgirl Flowers of Oakland, Calif., explained in an email to customers why it had chosen to bank with them in the first place.

“At the time I set the account up, a woman of color was running the bank. And, in an industry where representation is so lacking, I wanted to make the choice to bank with an organization that was changing what leadership looked like,” the founder, Christina Stembel, wrote.

She added, “while that’s not an intention I plan on changing, I also now understand that safeguarding my team and my business means also choosing to work with the monoliths in this sector, even if their ideals are not as aligned with my own.”

Stacy Cowley contributed to this report.