Carlyle's David Rubenstein: The government may have to help save First Republic: Morning Brief
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Uncle Sam to the rescue, maybe (and hopefully?).
One of the most plugged-in high financiers thinks troubled regional bank First Republic Bank will need more than a few bucks from stronger rivals to stay afloat and prevent the return of the banking turmoil that dominated March's headlines.
“I think First Republic Bank is clearly on a watchlist, and probably somebody at some point will buy it. But the challenge there is that it needs government assistance,” The Carlyle Group co-founder David Rubenstein said in a lengthy chat on Yahoo Finance Live.
Rubenstein believes First Republic Bank’s finances are in such rough shape the government will have no choice but to step in.
Adds Rubenstein: “There's a big hole in the balance sheet of First Republic Bank, I've been told. And therefore, I suspect the government will have to provide some assistance if that deal's gonna get done.”
A spokeswoman for First Republic Bank didn’t return Yahoo Finance’s request for comment.
As it stands, the fate of First Republic Bank is wildly unclear more than a month after the blowups of Silicon Valley Bank and Signature sent shockwaves through the financial system – notably to regional banks with high amounts of uninsured deposits and outsized commercial real estate exposure.
Big banks JP Morgan, Wells Fargo, Bank America and Citigroup each deposited $5 billion into First Republic in March to shore up confidence in the market, headlining a list of 11 banks and a total of $30 billion.
Meanwhile, First Republic Bank suspended its dividend as it went into capital preservation mode.
U.S. regulators welcomed the cash infusions by the big banks and said they supported the view the financial system remained on sound footing.
But, nowhere did regulators say they would be willing to plunk taxpayer dollars (ahead of a 2024 presidential election, no less) into a reeling First Republic Bank – which in effect would resemble the very unpopular Great Recession bank bailout packages.
Despite the capital injections and regulator show of support, First Republic Bank shares are off by a whopping 88% since March 1.
Rubenstein says he isn’t seeing the same type of contagion in the financial system as occurred in 2008 when over-leveraged investment banks like Lehman Brothers and Bear Stearns went bust. However, a resolution on First Republic Bank is needed.
"Turmoil is never over as long as markets are open. There's always going to be somebody finding something wrong or somebody trying to do something that maybe they shouldn't do," Rubenstein continued. "So I think right now, the worst of the turmoil for the banking sector in the United States, I think is probably behind us, but it'll be almost completely behind us when First Republic is resolved."
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