First Republic’s stock fell 47% to a record low Monday, as the bank struggled to persuade Wall Street it could remain viable.
Shares were halted several times for volatility, and they sank further after a report from the Wall Street Journal said rival banks led by JPMorgan (JPM) are trying to work on yet another rescue plan for First Republic.
JPMorgan and First Republic declined to comment on the report.
In a statement, a spokesperson for First Republic said the bank “is well positioned to manage short-term deposit activity.”
Despite having received a $70 billion loan from JPMorgan a week ago and another $30 billion lifeline from a consortium of banks on Thursday, investors apparently weren’t optimistic about the bank’s prospects.
Other regional bank stocks jumped on Monday, following their European peers, on news that Swiss authorities had orchestrated a takeover by UBS of its embattled rival Credit Suisse.
Thursday’s government-arranged deal amounted to a big cash deposit that would allow First Republic to meet customers’ demands for withdrawals.
‘It doesn’t solve this profitability problem’
That deposit may have helped alleviate the bank run for the time being, said Patricia McCoy, a law professor at Boston College.
“But it doesn’t solve this profitability problem,” she said in an interview Friday. “Its expenses may be bigger than its revenues.”
The latest talks are “fluid and fast-moving” but could involve the banks converting some of the $30 billion in deposits into a capital infusion, the Journal reported, citing people familiar with the matter.
Moody’s downgraded First Republic’s credit rating to junk status Friday night and S&P followed suit Sunday. Moody’s cited a deterioration of the bank’s financial profile and “significant challenges” from its reliance on shorter-term and higher-cost funding as customers yank their cash out.
What’s more, Thursday’s $30 billion infusion didn’t increase First Republic Bank’s capital — the safety cushion funds that banks use to absorb losses — “so that’s a separate weakness that we need to keep our eyes on,” said McCoy, who helped establish the Consumer Financial Protection Bureau.
McCoy added that there’s “every reason to think that the capital has shrunk,” given First Republic’s heavy paper losses on its bond portfolio.
— CNN’s Matt Egan contributed reporting.
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March 21, 2023 at 03:13AM
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First Republic shares tumble to a new low - CNN
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