First Republic Bank Weighs Nearly $100 Billion in Asset Sales

First Republic Bank Considers Selling $50-$100 Billion in Assets to Save Itself

First Republic Bank is in the midst of a financial crisis and is exploring the possibility of divesting $50-$100 billion of assets to rescue itself from the turmoil that has engulfed the industry. The sales, which include long-dated mortgages and securities, are aimed at reducing the mismatch between the bank’s assets and liabilities, which has left First Republic teetering after a run on deposits in March.

Potential Buyers Could Receive Incentives

Potential buyers, including large US banks, could receive warrants or preferred equity as an incentive to buy assets above their market value. The bank is trying to shore up its balance sheet to avoid being seized by the Federal Deposit Insurance Corp. and clear the path for a possible capital raise.

Challenges Facing the Bank

A day after First Republic reported earnings that fell far short of analysts’ estimates, the full extent of the challenges facing the bank are dawning on investors. A key component of its prior success – the wealth-management business for ultra-rich clients – may have its wings clipped. And now it’s also facing the prospect of having to unload a large portion of its assets. Shares plummeted 49% to a record low on Tuesday.

First Republic’s Plan to Restructure

In addition to selling assets, the bank also plans to focus on loans that can be sold on the secondary market, it said Monday. That’s a sharp departure from its old strategy of providing interest-only jumbo mortgages, a service that attracted legions of rich borrowers and helped build the company into a wealth-management giant.

Asset-Liability Mismatch

An asset-liability mismatch can happen when interest rates rise, forcing banks to pay depositors a higher interest rate than what they charge borrowers. At First Republic, that problem is particularly significant because a large portion of its assets are single-family mortgages made when interest rates were at historic lows. Unloading those would help alleviate the mismatch.

First Republic Shares Plummet

First Republic shares slumped 23% in early trading in New York Wednesday, after a plunge on Tuesday cut its market value in half to $1.5 billion. The bank was worth more than $22 billion at the start of March.

First Republic had total assets of $233 billion as of March 31, including $173 billion of loans and $35 billion of investment securities, according to its first-quarter earnings report.

A spokesman for the San Francisco-based firm declined to comment.

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