First Republic most likely headed for FDIC receivership, sources say; shares drop 40%

Shares of First Republic dropped sharply on Friday as hopes dimmed for a rescue deal that could keep the bank afloat.

Sources told CNBC’s David Faber that the most likely outcome for the troubled bank is for the Federal Deposit Insurance Corporation to take it into receivership. The stock slid about 40% and was halted for volatility multiple times.

The stock has fallen more than 90% this year as investors have lost confidence in the bank after two regional lenders failed in March.

Other banks are being asked by the FDIC for potential bids on First Republic if the bank was seized by seized by the regulator, sources told Faber. There is still hope for a solution that doesn’t include receivership, according to those sources.

First Republic told Faber on Friday that “we are engaged in discussions with multiple parties about our strategic options while continuing to serve our clients.”

CNBC reported on Wednesday that First Republic’s advisors were preparing to pitch larger banks on a plan that would let the regional lender sell bonds and other assets at an above-market rate and then raise equity. The sales would result in a loss for the banks that buy the bonds but could be cheaper long-term than letting the bank fail and get seized by regulators.

Reuters reported on Friday that U.S. officials — including from the FDIC, Treasury Department and Federal Reserve — are coordinating meetings with other banks to broker a rescue plan for First Republic.

Shares of First Republic closed at $16 on Monday before the bank reported its first-quarter results, which showed a decline in deposits of about 40%. The stock fell more than 60% over the next two days, hitting a new all-time low.

First Republic is a regional bank that has focused on high-net-worth individuals and their businesses, including offering mortgages at low interest rates to those customers.

Those mortgages, as well as other long-term assets on the bank’s balance sheet, have fallen in market value since the Fed began hiking rates last year, making investors worried that the bank would have to book a sizeable loss if forced to sell those assets to raise cash.

The bank’s massive deposit outflows came after the collapse of Silicon Valley Bank and Signature Bank in March. The nation’s largest banks, including JPMorgan Chase, have already helped out First Republic since then with $30 billion in time deposits.

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