First Republic
It is
The downed shares are making a comeback in response to a report that other banks may be making deposits with the lender, helping to ease concerns over its immediate future.
CNBC reported that the Goldman Sachs group
,
Morgan Stanley
,
JPMorgan Chase
,
and Citigroup
,
among others, are in talks on a plan that would involve transferring $20 billion in deposits to the bank. Citigroup declined to comment, while the other banks did not immediately respond to requests for comment.
Earlier, Bloomberg reported that First Republic was considering strategic options, which could include a sale. The Wall Street Journal reported that lenders including JMorgan and Morgan Stanley were discussing a potential deal with the bank that could inject capital into the business.
Shares of First Republic (ticker: FRC) soared as much as 22% in the early afternoon after a series of trading halts, leaving shares up 10%. The stock was down 29% earlier in the day, after falling 21% in Wednesday’s session.
News of a possible First Republic bailout helped shares of other regional banks that have seen their stock prices tumble over the past week. Shares of PacWest Bancorp (PACW) rose 4% after falling 24% in Thursday’s session. Western Alliance Bancorporation (WAL) saw its shares climb 15% after falling 15% earlier in the day.
Advertising – Scroll to continue
Trade in both names has been interrupted several times.
The First Republic has plunged over the past week even as bank executives have tried to assure customers and Wall Street that it has sufficient cash to handle deposit withdrawals. On Sunday, the bank said it had more than $70 billion in cash, partly from the Federal Home Loan Bank, the Federal Reserve and JPMorgan Chase.
The bank’s tally did not include any additional funding it was eligible for under the Fed’s new bank term funding program. The program allows banks to pledge treasury bills and similar assets that may have lost value as collateral at face value for loans of up to one year.
Advertising – Scroll to continue
Many banks are sitting on huge unrealized losses because the value of their bond holdings has declined as the Fed raised interest rates over the past year. BTFP allows banks to effectively mine these securities for cash without selling them, which would force them to realize the losses.
On Wednesday, ratings agencies S&P Global Ratings and Fitch Ratings downgraded First Republic debt to junk status, citing fears the bank could lose deposits. First Republic deposits are thought to be at risk of leaking as 68% exceed the Federal Deposit Insurance Corp.’s $250,000 insurance limit, according to recent data.
“If deposit outflows continue, we anticipate that the First Republic will have to rely on its more expensive wholesale borrowing. This would weigh down its balance sheet and hurt its modest profitability,” S&P analysts Nicholas Wetzel and Rian Pressman wrote on Wednesday.
Advertising – Scroll to continue
Concerns about First Republic, as well as the failures of Silicon Valley Bank and Signature Bank, have raised questions about the security of so-called “Tier 2” regional banks. These lenders were shielded from tighter regulations such as higher capital requirements and more active monitoring which could have prevented some of these problems.
“Tier 2 bank First Republic is signaling that it can no longer survive as a stand-alone bank. This signals broader issues for all regional banks,” wrote Jim Bianco, president of Bianco Research. in regional banks means that there has been a sudden and significant contraction in the availability of credit to the economy.”
Write to Carleton English at carleton.english@dowjones.com