The beleaguered lender First Republic Bank is exploring ways to reduce the imbalance between its assets and liabilities
As reported by Bloomberg, First Republic Bank considers divesting $50 billion to $100 billion of assets. The move is part of the institution’s efforts to handle the bank industry turmoil that started last month.
At the time, the United States Federal Reserve launched a $25 billion funding program for banks and other depository firms to maintain liquidity amidst the wave of industry shutdowns. First Republic Bank tried to enhance and diversify its financial position through additional liquidity from the Federal Reserve Bank and JPMorgan Chase. Besides, 11 big banks loaned First Republic $30 billion in the form of unsecured term deposits last month.
However, the loans couldn’t help the bank address all the existing challenges. On Monday, April 24, this financial institution published a press release, stating that the financial institution will reduce remuneration to managers and dismiss from 20% to 25% of employees. The decision came as First Republic witnessed a more than $100bn plunge in deposits in the first quarter.
Today, the institutional lenders as well as owners of the $20 billion in uninsured deposits still held at the bank are getting nervous as the institution’s executives refused to take questions on the Monday earnings call. The bank said it was “pursuing strategic options” to quickly strengthen its financial position, without providing details.
Reportedly, the prospective asset sales include long-dated mortgages and securities, which would be offered to potential buyers, including large US banks. The latter could receive warrants or preferred equity as an incentive to buy assets above their market value.
This way, the lender is trying to reinforce its balance sheet and avoid being seized by the Federal Deposit Insurance Corp., simultaneously clearing the path for a possible capital raise.
Meanwhile, the company’s stock fell almost 50% on Tuesday, and lost about 16% more within a day on Wednesday, following the unfavourable news.