US bank First Republic was again crushed by Wall Street on Monday despite measures to prop up the bank and help it avert the fate of SVB, the tech-focused lender that collapsed earlier this month after a bank run.
– Bank in turmoil –
Founded in 1985, First Republic is headquartered in San Francisco with branches located primarily in California and cities on the East Coast. It was the 14th largest US bank by assets at the end of 2022.
According to S&P Global Ratings, 68 percent of the money on deposit at the bank is not insured by the US government, as it is above the maximum allowed of $250,000 per account.
After three banks failed in close succession, investors fear that First Republic could be next and that depositors will withdraw their money en masse, sinking the bank.
These fears were implicitly confirmed on Thursday when First Republic revealed that it had borrowed tens of billions of dollars a day from the US Fed between March 10 and 15, at fairly high rates.
According to the Wall Street Journal, a total of $70 billion has been withdrawn in recent days, or about 40 percent of what the bank had on deposit at the end of 2022.
“With the (interest rates on) deposits that are quite cheap but will probably have to be raised and the more expensive borrowing, their profitability is really going to be squeezed going forward,” said analyst Alexander Yokum of CFRA.
– Rescue shortfall? –
Faced with the plunging share price, the bank sought to calm nerves by announcing on March 12 that it had secured $70 billion in liquidity, thanks to the Fed and JPMorgan Chase.
But with the markets still nervous, eleven major US banks pledged on Thursday to deposit a total of 30 billion dollars in First Republic’s accounts that they said was a vouch of confidence on the bank’s solidity.
S&P, which had already placed the bank in the junk investment category, further downgraded its rating on Sunday, saying that the hand extended by its competitors was “perhaps not” going to solve its problems.
First Republic answered that with the $30 billion and its own reserves, it was “well positioned to handle” the continuing withdrawals.
“If you’re a client of theirs, and you’ve seen the bank downgraded twice, maybe you’re less likely to want to keep your money there,” said analyst Yokum.
– Uncertain future –
Despite the interventions by US authorities and the banking sector heavyweights, investors are still unloading their shares in First Republic, which has lost 80 percent of its value in just eight sessions on Wall Street.
According to the Wall Street Journal, the big bank bosses, led by JPMorgan CEO Jamie Dimon, are currently looking for a new way to stabilize First Republic.
One possibility is to convert some or all of the $30 billion in deposits made Thursday into equity, which would lead to a dilution of existing shares.
A sale or an injection of fresh capital are also options on the table, the report said.