NEW YORK, March 22 (Reuters) – As beleaguered First Republic Bank (FRC.N) considers its options, Treasury Secretary Janet Yellen said on Wednesday there is no discussion on insurance for all deposits, making a “bull case” scenario more difficult for the stock.

First Republic, whose shares have lost much of their value since the banking crisis started in the U.S. on March 8, is among the banks 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.

Morgan Stanley analyst Manan Gosalia, in a report earlier this week, set a target price of $54 for First Republic shares, which dropped 15.5% to end at $13.33 on Wednesday. The optimistic case was based on a scenario in which the Federal Deposit Insurance Corporation (FDIC) insures all consumer deposits, according to the report.

That hope was reduced on Wednesday, after Yellen told a hearing of the U.S. Senate’s Appropriations Subcommittee on Financial Services that the government “is not considering insuring all uninsured bank deposits.” She added that the Treasury Department has not considered anything to do with guarantees for assets.

Those comments affected all regional bank stocks, said R.J. Grant, head of trading at Keefe, Bruyette & Woods. “Yellen struck a different tone for sure, there was this feeling that there was behind-the-scenes talks in Washington that depositors would be protected.”

JPMorgan (JPM.N) Chief Executive Jamie Dimon is scheduled to meet with Lael Brainard, the director of the White House’s National Economic Council, during the executive’s planned trip to Washington, according to a person familiar with the situation. The meeting was pre-scheduled and Reuters could not establish what was in the agenda. It comes as First Republic Bank’s efforts to secure a capital infusion continued on Wednesday.

The Morgan Stanley report considered that a potential extension of FDIC insurance could bring a majority of First Republic’s customers back. Banks involved in First Republic’s rescue negotiations are asking for a loss-sharing arrangement with the U.S. government similar to the terms agreed by UBS Group (UBSG.S) in its emergency takeover of rival Credit Suisse, according to an industry source.

The acquirer would receive support if after buying First Republic it finds a larger loss than expected, added the source, who requested anonymity to disclose private conversations.

First Republic declined to comment.

The bank is looking at ways it can downsize if attempts to raise new capital fail, Reuters reported on Tuesday, citing three people familiar with the matter.

Even if it clinches a cash infusion, the lender will probably need to take losses on securities in its so-called held to maturity portfolio, the Morgan Stanley analysts wrote.

A potential buyer would need to absorb losses of $26.8 billion in mark-to-market from First Republic’s loan and securities portfolios, while an extra $9.5 billion is needed to recapitalize the bank, the Morgan Stanley analysts estimated.

In the worst-case scenario, First Republic’s shares would sink to just $1, Morgan Stanley analysts estimated.

Citigroup withdrew its estimates for First Republic on Tuesday and put the stock under review. Analysts Arren Cyganovich and Kaili Wang said in a report that “some form of government intervention seems increasingly likely, albeit in what form remains unclear.”

Reporting by Tatiana Bautzer and Chris Prentice in New York
Additional reporting by Sinead Carew in New York
Editing by Lananh Nguyen, Nick Zieminski and Matthew Lewis

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