Joint Rescue Effort to Stabilize First Republic Bank and Restore Investor Confidence
Amid days of financial market turmoil, First Republic Bank is in dire straits. On Wednesday, ratings agencies S&P Global and Fitch downgraded the bank to junk status citing liquidity and funding risks, and the stock plummeted another 20% on Thursday to $20.65 per share, a fresh decade low.[0] The bank’s market capitalization has fallen from $21bn on 8 March, when the Silicon Valley Bank (SVB) crisis began, to less than $5bn.[1]
In response to the news, US Treasury Secretary Janet Yellen assured Congress that the US banking system remains “sound” and “Americans can feel confident that their deposits will be there when they need them.”[1] She added that “no taxpayer money is being used or put at risk with this action.”
Now, a group of financial institutions are in talks to deposit $20 – $30 billion in First Republic in an effort to build confidence, keep the deposit base solid, and potentially save the company.[2] JPMorgan, Morgan Stanley (MS), Citigroup (C), Bank of America (BAC), Wells Fargo (WFC), U.S. Bancorp (USB), PNC Financial (PNC) and Truist (TFC) are all part of the discussions.[3]
First Republic’s total available, unused liquidity to fund operations is more than $70 billion, from agreements that included the Federal Reserve and JPMorgan Chase & Co.[4] The bank is also eligible to receive additional funding from the Federal Home Loan Bank, and is exploring strategic options, including a potential sale.[5]
The San Francisco-based lender has a large amount of deposits that are uninsured because they are above the $250,000 FDIC limit, and are thus “most susceptible to withdrawal,” according to S&P Global Ratings.[1] Credit Suisse shares jumped early Thursday after the bank said it would tap a loan from the Swiss National Bank, but First Republic’s bonds have a lot of ground to catch up on after investor confidence in the bank crumbled this week.[6]
Any potential sale would likely be a tough outcome for existing shareholders, given mark-to-market accounting on loans, according to Christopher McGratty, an analyst at Keefe, Bruyette and Woods.[7] It remains to be seen whether the joint rescue effort will be successful in stabilizing First Republic and restoring confidence in the banking system.
0. “First Republic Bank stock tumbles on credit downgrade and deposit worries” CNN, 15 Mar. 2023, https://www.cnn.com/2023/03/15/investing/first-republic-downgrade/index.html
1. “Biggest US banks weigh rescuing First Republic as its shares tumble – report” The Guardian, 16 Mar. 2023, https://www.theguardian.com/business/2023/mar/16/first-republic-biggest-us-banks-weigh-rescue
2. “A group of banks are in talks to deposit more than $20 billion in First Republic, sources say” CNBC, 16 Mar. 2023, https://www.cnbc.com/2023/03/16/group-of-financial-institutions-in-talks-to-deposit-about-20-billion-in-first-republic-sources-say.html
3. “Bank Crisis: Yellen Speaks To Senate As Big Banks Discuss First Republic Bank Aid” Investor's Business Daily, 16 Mar. 2023, https://www.investors.com/news/bank-crisis-yellen-speaks-to-senate-first-republic-bank-ponders-sale
4. “First Republic Bank reportedly exploring potential sale after credit downgrade” Fox Business, 16 Mar. 2023, https://www.foxbusiness.com/economy/first-republic-bank-reportedly-exploring-potential-sale-credit-downgrade
5. “What's happening with First Republic Bank after SVB collapsed” Quartz, 16 Mar. 2023, https://qz.com/first-republic-bank-shares-svb-signature-bank-collapse-1850231778
6. “Stock Market Today: Dow Rises 300 Points; Credit Suisse Breaks Losing Streak” The Wall Street Journal, 16 Mar. 2023, https://www.wsj.com/livecoverage/stock-market-news-today-03-16-2023
7. “First Republic Sinks as Bank Said to Explore Strategic Options” Yahoo Finance, 16 Mar. 2023, https://finance.yahoo.com/news/first-republic-sinks-bank-said-113911992.html
