First Republic shares are rising on reports that major banks may be propping them up
- Finance
- March 16, 2023
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- 6
Shares in First Republic Bank enjoyed a wild ride on Thursday, falling as much as 36% in early trade before surging 22% later in the day amid reports that larger banks could step in to take over the regional financial institution support.
The stock reversal comes as the sudden collapse of Silicon Valley Bank (SVB) on Friday raised concerns about the financial health of regional lenders. First Republic, with $212 billion in assets under management, has seen its market value fall to less than $7 billion from more than $22 billion in January.
Shares of First Republic rose $3.90, or 13%, to $35.06 in early afternoon trading after hitting an intraday high of $38. They were as low as $19.80 earlier in the day.
The similarities between the First Republic, founded in San Francisco in 1985, and the $210 billion SVB go beyond size. Like its neighbor, a significant portion of First Republic’s deposits are uninsured, making it more vulnerable to withdrawals from shy customers.
On Thursday, major financial institutions — including Citigroup and Wells Fargo — were in talks to deposit billions of their wealth with First Republic to prop it up, the Wall Street Journal reported. According to Bloomberg News, the larger banks could contribute $30 billion to stabilize the bank. A deal could be announced as early as today, the media reported.
A new round of capital would come on top of additional cash reserves First Republic added from the Federal Reserve and JPMorgan Chase earlier this week.
Treasury Secretary Janet Yellen reiterates strength of US banking system 04:53
First Republic’s credit rating was downgraded by Moody’s this week, with the agency noting that the bank holds fewer cash reserves compared to other lenders of its size. In a research note, the rating agency noted that First Republic is “more prone to rapid and large depositor withdrawals” than other banks.
“If faced with higher-than-expected deposit outflows and liquidity support proved inadequate, the bank could have to sell assets, which could result in unrealized losses,” Moody’s said.
First Republic did not respond to a request for comment.
CEO Mike Roffler said earlier this week that the bank has a “very strong” capital base, citing $70 billion available to operate.
Pacific West, Zions, Western Alliance and other regional banks saw their shares plummet this week after financial regulators’ sudden seizure of SVB scared investors. Many of those stocks regained ground on Tuesday after President Biden reassured Americans they can have confidence in the US banking system and regulators promised all deposits with the SVB would be available to customers.
Treasury Secretary Janet Yellen attempted to allay concerns about US bank stability during an appearance before the Senate Treasury Committee on Thursday.
“I can assure the members of the committee that our banking system is healthy and that Americans can be confident that their deposits will be there when they need them,” she told lawmakers. “This week’s actions demonstrate our determination to ensure depositor savings remain strong and depositor savings remain safe.”
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Christopher J Brooks
