Why First Republic Has Not Done a Deal

The challenges of saving a troubled lender

First Republic will report quarterly earnings on Monday, its first since the collapse of Silicon Valley Bank sparked a regional banking crisis. Pressure on the sector is not over: Moody’s, the rating agency, downgraded 11 regional lenders on Friday, including Zions and Western Alliance. And despite a $30 billion lifeline provided by some of the country’s largest banks, First Republic’s shares have fallen nearly 90 percent over the past six months.

So why hasn’t there been a deal to raise more cash or sell assets — or itself?

The challenge is significant. First Republic’s hole in its balance sheet is reportedly about $25 billion. That raises the question as to who is going to absorb those liabilities — and how. It’s a problem that First Republic is trying to solve through some combination of the government, big banks and private equity (though it will not necessarily involve all three), DealBook hears. Each of those parties has different priorities, timelines and constraints. Discussions are continuing.

How much time is on the clock? First Republic is not expected to announce a deal alongside its earnings. But it is expected to offer guidance on the stability of its deposit base and the size of its potential losses. Assuming those have moderated, First Republic has time to solve its problem. But its decision to suspend dividends on its preferred shares shows the bank is clearly focused on managing cash. It has already lost wealth advisers to competitors, and the situation could change if further shocks to the commercial real estate industry cause another run on deposits, or if any other unexpected issues emerge.

Still, analysts say those challenges may not yet be lethal, leaving First Republic in a somewhat painful holding pattern. “The only acquisition scenario that is possible for FRC, in our view, is through receivership, in which a would-be acquirer is able to take advantage of an FDIC-assisted bargain purchase,” analysts at Wedbush Securities wrote on April 10. “Therefore, we conclude that FRC will attempt to grind it out as a stand-alone company for the foreseeable future.”

HERE’S WHAT’S HAPPENING

Johnson & Johnson reportedly seeks to end the I.P.O. doldrums. The group will start pitching prospective investors on Kenvue, its consumer health division that produces household products like Tylenol, as soon as today, according to The Wall Street Journal. J.&J. is hoping to raise at least $3.5 billion from the offering.

A top Budweiser marketing executive steps back amid conservative backlash. Alissa Heinerscheid, who oversaw Bud Light’s partnership with a transgender influencer, is taking a leave of absence following calls to boycott the brand from critics of its effort to adopt more inclusive marketing. Others have since attacked Budweiser for its moves to tamp down the controversy.

Twitter’s verification overhaul takes a strange turn. After the social network stripped thousands of notable users of their check mark icons, a move meant to drive subscriptions to its Twitter Blue service, it restored the badges to some celebrities — including dead ones like the chef and author Anthony Bourdain. Critics said the confusion was the latest sign of chaos at Twitter under Elon Musk.

Tulane Law School’s dean is leaving. David Meyer will become dean of Brooklyn Law School. Since taking the role in 2010, Meyer helped oversee Tulane’s Corporate Law Institute, which hosts perhaps the top gathering for M.&A. lawyers, bankers and other advisers who descend upon the school’s hometown, New Orleans, to talk shop.

NBCUniversal loses a leader at a key moment

The news yesterday that Jeff Shell was stepping down as C.E.O. of NBCUniversal after having an inappropriate workplace relationship with an employee shocked media executives in New York and Hollywood.

And it leaves a hole at the top of NBCUniversal at a crucial time, as the company and its parent, Comcast, try to figure out its future.

Shell was dismissed following a weekslong investigation, after a woman — whom The Wall Street Journal reports was a veteran journalist at NBCUniversal — filed a complaint against him. Few inside the company knew of the inquiry, conducted by an outside law firm, until Comcast announced the news on Sunday.

“We are disappointed to share this news with you,” Brian Roberts, Comcast’s C.E.O., told employees. “We built this company on a culture of integrity.”

It’s unclear who will replace Shell, a longtime Comcast executive who had Roberts’s ear. In the interim, Mike Cavanagh, Comcast’s president and Mr. Roberts’s heir apparent, will oversee the business.

Potential longer-term candidates include Mark Lazarus, who runs NBCUniversal’s TV and streaming operations; Cesar Conde, who heads its news division; and Donna Langley, chairwoman of Universal Pictures.

Shell’s departure comes at a difficult time for NBCUniversal, which is struggling to navigate the challenges of the current media age. Peacock, its streaming service, lost $2.5 billion last year and is expected to lose an additional $3 billion this year. Shell had long called for NBCUniversal to embrace streaming, and led an effort to move the company’s content off Hulu — which Comcast owns about a third of but is controlled by Disney — and onto Peacock.

Meanwhile, NBCUniversal’s vast array of cable channels are suffering from the broader decline in traditional TV viewership.

(One bright note is the strong performance of Universal Pictures’ “Super Mario Bros. Movie,” which has collected $871 million at the global box office and is the year’s highest-grossing title.)

The division’s future is hazy. In a sign that Comcast has been considering all sorts of options for its media unit, the conglomerate weighed combining NBCUniversal with the video game giant Electronic Arts last year, aiming to spin out the new business. That deal didn’t happen, but it suggests that almost everything is on the table, particularly as analysts predict more media mergers to take place.

Expect plenty of questions for Comcast’s leaders when the company reports earnings on Thursday.

A $69 billion stampede from Credit Suisse

In Credit Suisse’s last financial report before being sold to UBS, the bank today shed more light on its final days — including a huge flight of capital that most likely helped persuade Swiss regulators that the long-struggling lender needed a rescue.

Clients pulled nearly $69 billion in assets in the first quarter, particularly in the second half of March, in what Credit Suisse called “significant net outflows.” The figure underscores the evaporation of confidence in the firm amid the market turmoil set off by the collapse of Silicon Valley Bank.

Though Credit Suisse borrowed billions from the Swiss central bank to allay investors’ fears about its health, months of growing doubts about its ability to survive — driven by years of scandals and financial missteps — finally led the authorities to conclude that the lender needed to be rescued and orchestrated its sale to UBS.

Overall, Credit Suisse lost 1.3 billion Swiss francs ($1.46 billion) for the quarter.

Clients have not fully returned yet, even though Credit Suisse is set to be absorbed by its stronger rival. That highlights some of the challenges UBS faces in trying to stabilize the bank it agreed to buy at for $3.2 billion.

Credit Suisse also ended a $175 million deal to buy M. Klein, the boutique financial advisory firm owned by the longtime deal maker and former board member Michael Klein. That acquisition was meant to underpin a turnaround plan for Credit Suisse, which would have involved combining its investment bank with Klein’s and spinning out the business.

Bed Bath & Beyond bites the dust

Bed Bath & Beyond finally died on Sunday, after the retailer filed for bankruptcy following months of trying to come up with a rescue plan. Its collapse, days after David’s Bridal, the wedding dress chain, also filed for bankruptcy, is the latest sign that the post-pandemic retail landscape boosted by free money and stimulus check spending is over.

Bed Bath & Beyond’s debt became a problem. As of November 2020, the company had about $1.5 billion in cash on hand, compared to roughly $1.2 billion of debt, according to the bankruptcy filing. But it spent $1 billion in buybacks at the same time as revenue plummeted. That, combined with the sharp and sudden decline in the company’s share price (the stock has been trading at less than $1 for a month after peaking at about $80 about a decade ago), hammered Bed Bath & Beyond’s financial stability.

Suppliers lost confidence. During the third quarter of 2021, the retailer was unable to fulfill an estimated $100 million in sales because it did not have the products, according to the filing. Bed Bath & Beyond slowed payments to vendors and cut orders at the start of last year to focus on private label brands, and suppliers went elsewhere.

Sue Gove, who became permanent C.E.O. in October, said stock levels were at about 70 percent during the past holiday season.

The company was burdened by its brick-and-mortar operations. Bed Bath & Beyond did not invest enough in e-commerce, and it never came to grips with the lethal combination of declining in-store sales while holding on to the vast expenses associated with having more than 300 outlets.

The week ahead

This week, a number of big tech companies and consumer goods groups will report quarterly results, the U.S. will release economic data for the first three months of the year, and President Biden could announce that he plans to run for re-election.

Tomorrow: Alphabet and Microsoft, which are both cutting jobs and competing with each other on A.I., report; McDonald’s, Pepsi and Nestlé give a glimpse of consumer confidence; and UBS announces results.

Wednesday: Meta releases results after its latest round of layoffs last week. British regulators are set to rule on Microsoft’s $69 billion takeover of Activision Blizzard.

Thursday: Amazon announces earnings after its stock rallied last week on a report last week that sales are set to beat analysts’ estimates. The U.S. reports first-quarter G.D.P. figures.

Friday: Investors will be watching to see if ExxonMobil can maintain its surging profits on the back of high energy prices.

THE SPEED READ

Deals

• What investment do tech moguls like Jeff Bezos, Bill Gates and Marc Benioff have in common? Nuclear fusion. (WSJ)

• An auction of Celsius, the bankrupt crypto lender, is set for tomorrow, with bidders expected to include the exchange operator Coinbase. (Fortune)

Policy

• The Sackler family, which owns the maker of OxyContin, gave $19 million to a federally chartered advisory group that helped shape the government’s response to the opioid crisis. (NYT)

• “Small Towns Chase America’s $3 Trillion Climate Gold Rush” (WSJ)

Best of the rest

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