First Republic Bank stock fell more than 30 percent on Wednesday.
(Photo: Reuters)
new York The fear of further bank failures has not been banished: the share price of the Californian First Republic Bank lost up to 36 percent on Thursday. The reason was reports that the bank was considering various options to strengthen its own finances – including a sale. According to the news channel CNBC, it is about a sum of 20 billion dollars.
“Typically, a headline about a potential sale would support the stock,” writes Christopher McGratty, an analyst at Keefe, Bruyette and Wodds. “But the potential bank outflows following the collapse of Silicon Valley Bank (SVB) put First Republic in a difficult position.” A sale would likely be unfavorable for current shareholders given the current valuation is very low.
According to a report by the Wall Street Journal (WSJ), JP Morgan, Morgan Stanley and other major banks are currently working on possible aid for First Republic. That helped the stock price slightly. Still, as of midday Thursday afternoon, the stock was still down more than 20 percent and trading at about $24. According to financial news agency Bloomberg, the US government is orchestrating the bank’s rescue.
First Republic is based in San Francisco, but also has offices in other states such as New York. The bank is primarily focused on the wealthy clientele. But even with her, concerns had recently arisen that the deposits were not adequately secured.
Rating agencies S&P and Fitch downgraded their rating of First Republic Bank’s creditworthiness to junk status on Wednesday. That had already caused the stock to collapse by more than 20 percent on the day.
The WSJ, citing a document, reports that First Republic executives have sold millions of dollars worth of stock in the bank over the past two months. This was not noticed before. Unlike most companies, First Republic insider trades are not required to be reported to the SEC.
At First Republic, the Fed and JP Morgan provided more liquidity over the weekend to avoid panic among customers. Nevertheless, the share collapsed massively on Monday and only recovered slightly on Tuesday.
First Republic Bank: Wealth management most attractive part for potential buyers
“First Republic’s options have diminished following the outflow of deposits, the fall in the share price and the recent downgrades by rating agencies,” writes Herman Chan, an analyst at Bloomberg Intelligence. A possible sale could focus on the attractive wealth management business, he says.
Deposits at Silicon Valley Bank and Signature Bank in New York were also not adequately secured. This had led to customers massively withdrawing their deposits. The two banks were rescued over the weekend.
Silicon Valley had primarily invested in long-term bonds. However, this was problematic because these are currently worth less due to the rise in interest rates. When many customers withdrew their funds, the bank had to realize these losses, triggering renewed panic.
Now the focus is on the US regional banks because they have not been so heavily regulated since the Trump administration. They can invest their customers’ deposits without protecting them as much as big banks like Citi or JP Morgan require.
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