(Reuters) – First Republic Bank’s efforts to secure a capital infusion continued without success on Tuesday, as the troubled regional lender started to plan for the possibility it may need to downsize or get a government backstop.

Major banks and private equity firms have so far balked at offering First Republic the capital infusion it craves for fear of releasing losses on the bank’s loan book and investment portfolio amid a rise in interest rates.

On Tuesday, Reuters reported First Republic is examining how it can downsize and sell parts of its business, including some of its loan book, in a bid to raise cash and cut costs.

This could help the bank tackle its negative book value – the gap between its liabilities and its assets – which analysts and investors estimate to be between $9.4 billion and $13.5 billion.

Bloomberg News reported U.S. officials and Wall Street leaders seeking to aid First Republic were exploring the possibility of government backing that would help overcome the issue of the bank’s unrealized losses.

The government could play a role in taking out assets that have eroded First Republic’s balance sheet, Bloomberg reported on Tuesday, citing people with knowledge of the discussions.

First Republic declined to comment. In a message to clients posted on its website on Tuesday, the bank said it remained “well-positioned to continue to manage deposit activity.”

Shares of First Republic tumbled 9% in extended trade on Tuesday evening. Some investors associate potential government interventions with the regulatory takeovers that followed the failures this month of Silicon Valley Bank and Signature Bank and resulted in the wipeout of their shareholders.

“People just get nervous that if the government steps in there’s going to be nothing left for shareholders,” said Dennis Dick, a trader at Triple D Trading in Ontario, Canada. 

The new scenarios for First Republic come as major bank chief executives gathered in Washington, D.C., for a two-day scheduled meeting starting on Tuesday, sources familiar with the matter said.

The quarterly meeting of the Financial Services Forum included the CEOs of JPMorgan Chase & Co, Jamie Dimon, and Bank of America Corp, Brian Moynihan, the nation’s two largest lenders, the sources said.

First Republic’s shares had surged as much as 60% on Tuesday before closing up 30%, but even so First Republic’s stock has lost over 80% in value in the past two weeks. Its market value stood at $3 billion, down from $27 billion in early February.

JPMorgan is advising First Republic on its options to raise capital from investors, a source familiar with the situation previously said.

The banks were aiming to work out details for what needs to be done for First Republic within the coming 24 hours, another source said.

Eleven lenders, including the eight members of the Financial Services Forum, threw First Republic a lifeline of a combined $30 billion in deposits last week.

The U.S. banking system is showing signs of stabilizing, but further steps to protect bank depositors may be warranted if smaller institutions suffer deposit runs, U.S. Treasury Secretary Janet Yellen said.

In a sign of easing jitters, traders now expect the Federal Reserve to raise interest rates on Wednesday at the close of its two-day policy meeting. A week ago, fears of the deepening financial crisis had traders betting the Fed would hit pause on its battle against inflation.

The S&P 500 financial index climbed 2.5% on Tuesday, the largest one-day gain since November.

“There are a number of factors lifting the (financial) stocks, including the comments by Yellen. We have the Fed meeting tomorrow, so there’s some anticipation of that,” said Macrae Sykes, portfolio manager for the Gabelli Financial Services Opportunities ETF.

VOLATILE STOCK

The recent selloff in bank stocks triggered by the collapse of Silicon Valley Bank and Credit Suisse, which was rescued on Sunday by UBS, has some investors looking for bargains.

“The stocks are more inexpensive today than they were during the pandemic, and if you don’t buy banks here, we aren’t sure when you do,” Baird analysts said in a client note. The market is currently pricing in a permanent reduction of up to 50% in returns on assets, it said, calling that “beyond silly.”

Other investors remained skeptical of First Republic’s stability.

“We believe First Republic remains in crisis,” said Jason Benowitz, senior portfolio manager at CI Roosevelt.

(Reporting by David French, Nupur Anand, Lananh Nguyen, Tatiana Bautzer and Saeed Azhar in New York, Medha Singh in Bengaluru and Noel Randewich in Oakland, Calif.; additional reporting by Shubham Batra in Bengaluru, and by Sinead Carew and Lance Tupper in New York; Editing by Greg Roumeliotis, Anna Driver, Leslie Adler and Lincoln Feast.)

By Tim Hepher, Aditi Shah and Tanvi Mehta

NEW DELHI (Reuters) -Tensions over plans to transform Air India into a global airline with hundreds of new jets rippled across the aviation sector on Tuesday as foreign carriers clamoured for more access to the world’s fastest-growing economy.

Prime Minister Narendra Modi’s government faces growing demands to ease a near-freeze on capacity that can be deployed on many routes to and from India, now that India’s flag carrier has been sold to the cash-rich Tata conglomerate.

Current limits on the amount of flying allowed between India and many markets date back to heavy losses at Air India around the beginning of the last decade, analysts said.

But a huge overhaul of the airline, including the world’s largest ever plane order for 470 jets, rekindled a debate over market access at a New Delhi aviation conference on Tuesday.

Dubai’s Emirates, Turkish Airlines and Kuwaiti carrier Jazeera Airways all called for sharp increases in traffic rights to and from India to meet demand. Vietnam and Indonesia also want more flights, an Indian official said.

“We are not getting enough share from this market,” Turkish Airlines Chief Executive Bilal Eksi told the CAPA India conference. Dubai has requested an extra 50,000 seats a week on India routes.

But in an exclusive interview, India’s civil aviation minister told Reuters the government is not currently looking at easing curbs. He urged Indian airlines to order more big jets to meet demand without forcing passengers to change planes.

“I think it’s about time that our carriers looked at the international market with greater focus. That’s what we are pushing the airlines to do and that process has already started,” Jyotiraditya Scindia said.

Currently most Indians use foreign carriers for long trips, often changing at Gulf hubs, with relatively few long-range jets based in the country despite a population of 1.3 billion.

‘BIGGER SHARE’

Now, the rebirth of Air India and launch of a new Saudi carrier with dozens of jet orders has shuffled the deck and left Dubai’s massive international hub flanked by new rivals.

But Emirates President Tim Clark welcomed the launches and said there was enough room for everyone without traffic curbs.

“There’s so much (demand) there that none of us will be able to deal with it, if we allow unconstrained growth,” he said.

Analysts said India’s government is in no hurry to relax the curbs as it seeks to recapture traffic lost to foreign carriers – part of a wider initiative to create an economic powerhouse.

“There is clear evidence that the government wants a mega-carrier of size, scale and quality to emerge over the years,” said Kapil Kaul, head of the CAPA India consultancy, adding the refusal to allow more flights for now appeared to be tactical.

“I don’t think they’re even encouraging the discussion … the position whether other airlines like it or not, is ‘we want to build a bigger brand and we want to have a bigger share’.”

In one exception, India has granted more flights to Russia, Civil Aviation Secretary Rajiv Bansal said.

Other analysts noted India is not alone in making use of a post-war system of air traffic agreements to aid development.

“It is not about the airlines; the government is saying it’s about India as a country: ‘we want non-stop flights’,” said Ameya Joshi, founder of air analysis website NetworkThoughts.

“Next year is an election year so it would not make sense for the government to take risks on traffic rights now. Anything that happens is likely to be after the elections.”

(Reporting by Tim Hepher, Aditi Shah and Tanvi Mehta in New Delhi; editing by Jonathan Oatis)

By Aditi Shah and Tim Hepher

NEW DELHI (Reuters) -India dampened foreign airline hopes for more access to its airports on Tuesday, with its aviation minister urging domestic carriers to fly long-haul and help establish new hubs as it seeks to recapture control of Indian travel from foreign rivals.

It is also asking aerospace companies to step-up local production and will soon finalise rules to safeguard rights of lessors on repossession of jets, in a bid to level up with major global aviation markets, Jyotiraditya Scindia told Reuters.

“India is now at that inflection point,” Scindia said during an interview at his office in New Delhi.

“We are going to see an explosion of air traffic in India in the years to come,” he said, adding he wanted domestic carriers to look at international expansion with greater focus.

The South Asian nation is one of the fastest-growing aviation markets in the world where demand for air travel is outstripping the supply of planes, but the bulk of international traffic is captured by global carriers with efficient hubs.

Now, India wants to harness these economic gains for itself by boosting growth of its airlines and airports.

Air India last month placed a record order for 470 jets and is making an aggressive push in the international market. Domestic rival IndiGo is also in talks for a new order of more than 500 planes, Reuters reported earlier this month, even as it waits to take delivery of the same number from an older order.

Scindia said India was not looking at increasing air traffic quotas with Gulf states and instead wanted Indian carriers to offer non-stop long haul flights on larger planes. He said Air India’s widebody plane order and IndiGo’s twin-aisles to some destinations were signs that “transition” had begun.

India is also mobilising to handle the transportation needs of its population of 1.3 billion by building new airports in the country’s remotest parts and expanding capacity at major ones.

Domestic and international passenger traffic through six major metro airports is expected to more than double to 420 million over the next five years and India’s fleet is set to grow to over 2,000 planes from 700 today, Scindia said.

He is working with some airlines and Delhi airport to create a hub and spoke model in the capital that will allow seamless transition of passengers hopping off domestic flights and on to their international connections and vice versa.

“Today my hubs are in either the eastern border of my country or the western border of my country. With the scale that I have, I must create a hub within India,” said Scindia.

But even with hundreds of new planes on order, and India’s history of airline failures such as Kingfisher and Jet Airways, Scindia said he was not concerned this would lead to any oversupply because the country’s economy, rapid urbanisation and underpenetrated air travel market would support growth.

“Earlier, airports and airplanes would only go to those cities that presented a great economic growth story to make the rationale for that investment. Today, it is airports and airlines that are determining economic growth,” said the 52-year-old minister.

“That whole paradigm has changed.”

(Reporting by Aditi Shah, Tim Hepher; Editing by Andrew Heavens and Mark Potter)