First Republic Bank shares tumbled 32% on Friday, despite an unprecedented $30 billion rescue package from large U.S. banks. Investors remained concerned about the bank’s financial health. The massive deposit injection, led by top power brokers such as U.S. Treasury Secretary Janet Yellen, Federal Reserve Chair Jerome Powell, and JPMorgan CEO Jamie Dimon, failed to restore confidence in the beleaguered lender.
Founded in 1985, the San Francisco-based First Republic had $212 billion in assets and $176.4 billion in deposits at the end of last year, according to its annual report. However, its shares have fallen more than 80% this month following the collapse of two mid-size U.S. lenders, which triggered a broader banking crisis.
The big banks putting money into #FirstRepublicBank are likely getting that money from the #Fed. They're swapping their heavily discounted Treasuries and MBS with the Fed at par, then depositing the windfall with First Republic. Banks win, Americans lose with higher #inflation.
— Peter Schiff (@PeterSchiff) March 17, 2023
In an effort to stabilize the bank, 11 financial institutions, including Goldman Sachs, Morgan Stanley, and Citigroup, pledged to deposit $30 billion into First Republic. The group expressed confidence in the bank and emphasized their commitment to supporting banks of all sizes.
However, the market’s response indicates that investors may be seeking an outright sale or acquisition rather than a capital injection. John Petrides, a portfolio manager at Tocqueville Asset Management, noted that the situation remains unresolved. Jefferies analysts, led by Ken Usdin, also suggested that the new deposits would likely serve as a bridge for First Republic to explore a sale.
🚨 BREAKING NEWS 🚨
The contagion is very real, They are just trying to control the fear until they can get their money out.
First Republic Bank – Down 32.62%
Pacific Western Bank – Down 17.38%
Western Alliance Bank – Down 9.16%
Credit Suisse Group – Down 10.91% pic.twitter.com/JQqfoI4fza
— 🏴☠️ G-MAN 🏴☠️ (@GavinClimie) March 17, 2023
Despite the rescue package, analysts are concerned about the bank’s future. Atlantic Equities downgraded First Republic to neutral, noting that the bank may need an additional $5 billion in capital. Analyst John Heagerty highlighted the possibility of a capital raise, as the limited information provided implies a substantial increase in the balance sheet. Meanwhile, Wedbush analysts set a $5 price target on First Republic, warning that a distressed M&A sale could leave minimal residual value for common equity holders.
Late Friday, the New York Times reported that First Republic was in talks to raise capital by selling shares to other unnamed banks or private equity firms in a private sale. The terms of the deal, including the price of the shares and the number to be sold, were still under discussion, with the possibility of the entire bank being sold.
First Republic’s financial woes have led to broader implications in the banking sector. Shares of Wall Street banks involved in the lender’s rescue, including JPMorgan Chase & Co., Citigroup Inc., Bank of America Corp., and Wells Fargo & Co., dropped between 2% and 4%. In addition, Moody’s, the rating agency, downgraded its outlook on the U.S. banking system to negative earlier in the week, citing “funding and liquidity strains on banks, driven by weakening depositor confidence.”
The $30 billion rescue package came on the heels of Swiss bank Credit Suisse securing an emergency central bank loan of up to $54 billion to boost its liquidity. In addition, Fed data on Thursday showed that banks sought a record $152.9 billion in emergency liquidity from the U.S. central bank, surpassing the previous high set during the 2008 financial crisis.
With First Republic’s future uncertain and concerns about the wider banking sector mounting, whether additional measures will be taken to stabilize the bank and restore investor confidence remains to be seen.