First Republic stocks fall despite $30 billion big bank bailout

Shares of regional banks fell on Friday even after the nation’s biggest lenders agreed to inject $30 billion in uninsured deposits into First Republic Bank

The bailout, involving several of the largest US banks, including Bank of America (ticker: BAC), Citigroup (C) and JPMorgan Chase (JPM), initially brought some relief to regional bank stocks, but that optimism seems to have been short-lived. -lived.

First Republic (FRC), which closed 10% higher on Thursday, was down 18% at $27.99 before opening Friday, while PacWest Bancorp (PACW) slipped 5%. First Republic also suspended its after-hours dividend, adding pressure on stocks.

The consortium of 11 banks also includes Wells Fargo (WFC), Goldman Sachs (GS), Morgan Stanley (MS), Bank of New York Mellon (BK), PNC Financial Services Group (PNC), State Street, Truist Financial (TFC) , and US Bancorp (USB).

The move reflects their “confidence in the country’s banking system,” the banks said in a joint statement. “America’s largest banks stand united with all banks in supporting our economy and everyone around us,” they added.

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But activist investor Bill Ackman said the intervention only served to spread the risk of contagion. “The result is that the risk of default from First Republic Bank is now extended to our largest banks. Spreading the risk of financial contagion to create a false sense of confidence in the First Republic is bad policy,” he said. he declares. said in a tweet late Thursday.

Others on Wall Street tried to make sense of the bailout with Peter Boockvar of The Boock Report writing, “What a strange way to save a bank.”

“Imagine if Janet Yellen called Walmart


Target and Amazon and encouraged them to buy products from another retailer, whose business was teetering, every month to keep them alive,” Boockvar wrote.

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When it comes to First Republic stocks, Wall Street appears split: 42% of analysts covering the stock are buying, 50% have holding ratings, and 8% say sell.

JPMorgan analysts reiterated their overweight rating and said the bank’s stock remains its top pick, given “substantial upside potential” from its revised $62 price target.

“Compared to the results of SVB and Signature, America’s largest banks have stepped up in a way we’ve never seen before to provide direct deposit support to First Republic,” they said.

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They added that while there are still unknowns ahead, making this a “higher risk” stock, it was also a “higher reward” stock given that it is trading well below its tangible book value.

But outside of JP Morgan, there was much more caution expressed on Wall Street.

Wedbush analysts downgraded First Republic shares to Neutral from Outperform on Friday, with a price target of $5. They said a potential distressed M&A sale would result in minimal residual value for shareholders.

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“A sale of FRC to a larger entity should benefit the banking system as a whole and should help alleviate contagion fears,” Wedbush said. “However, given the fair value of the brands embedded in both its loan and securities portfolio, we find it difficult to provide a realistic scenario where there is residual value for FRC common stockholders.”

Analysts then noted that First Republic’s tangible book value as of December 31 was negative $73 per share when measured at fair value. That equates to a $13.5 billion capital hole for a potential buyer, they added.

Evercore ISI analysts also expressed skepticism about whether the $30 billion capital injection would be enough for the First Republic. While the move may allay concerns of contagion for regional banks, for the First Republic it allows the bank to “fight another day” but amounts to a “temporary solution” given that bailout banks can withdraw funds in 120 days.

In Europe, Credit Suisse shares

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(CS) – another bank under pressure – fell more than 3% in early trading, having climbed almost 20% in previous sessions after the bank announced it would borrow up to 50 billion. Swiss francs ($54 billion) to the country’s central bank. . The stock, however, fell 24% on Wednesday, after its largest shareholder ruled out investing further in the bank, and remains down 32% since early March.

Despite concerns about the health of the banking sector spreading to Europe, the European Central Bank raised interest rates by 50 basis points on Thursday, sticking to the plan it set out last month.

The ECB is the first major central bank to make a rate decision since the turmoil triggered by the Silicon Valley Bank collapse. The US Federal Reserve is due to make its next decision on March 22 and the Bank of England the next day.

Write to Callum Keown at

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