Exclusive: First Republic considers downsizing if capital raise fails -sources

First Republic Bank branch in Midtown Manhattan in New York City
A person walks past the First Republic Bank branch in Midtown Manhattan in New York City, New York, U.S., March 13, 2023. REUTERS/Mike Segar

NEW YORK, March 21 (Reuters) - First Republic Bank (FRC.N), the U.S. regional bank struggling to remain viable following a flight of deposits, is looking at ways it can downsize if its attempts to raise new capital fail, according to three people familiar with the matter.

First Republic has been working with JPMorgan Chase & Co (JPM.N) to find new sources of capital after a consortium of major banks provided it with a total of $30 billion in deposits last week in a move of solidarity. Unrealized mark-to-market losses in First Republic's loan book and investment portfolio have been an obstacle to clinching an investment, Reuters has reported.

First Republic is examining how it can sell parts of its business, including some of its loan book, in a bid to raise cash and cut costs, one of the sources said. A sale of loans to other parties, including private equity firms, is one option under consideration, two of the sources said.

While a sale of the entire bank remains possible, First Republic is still currently focused on a capital raise, the third source said.

The sources cautioned the situation remained fluid and asked not to be identified because the deliberations are confidential. First Republic and JPMorgan declined to comment.

Shares in First Republic extended gains following the news, up 60% to $19.44. The bank is still worth less than a fifth of where its shares were trading before the banking crisis started in the United States on March 8.

First Republic Bank is among the banks that have been speaking to peers and investment firms about potential deals in the wake of U.S. regulators taking over Silicon Valley Bank (SIVB.O) and Signature Bank (SBNY.O) this month following bank runs.

Chief executives of major banks are gathering in Washington, D.C. for a two-day pre-scheduled meeting starting on Tuesday, and the future of First Republic is due to be among the topics of conversation, sources familiar with the matter said.

Reporting by David French and Lananh Nguyen in New York; Editing by Greg Roumeliotis, Rosalba O'Brien and Andrea Ricci

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Lananh Nguyen is the U.S. finance editor at Reuters in New York, leading coverage of U.S. banks. She joined Reuters in 2022 after reporting on Wall Street at The New York Times. Lananh spent more than a decade at Bloomberg News in New York and London, where she wrote extensively about banking and financial markets, and she previously worked at Dow Jones Newswires/The Wall Street Journal. Lananh holds a B.A. in political science from Tufts University and an M.Sc. in finance and economic policy from the University of London.