First Republic shares drop nearly 50% as people move their money despite $30 billion bailout
Bank of the First Republic remained in crisis mode this week, despite concerted efforts by major banks to stabilize their finances and the federal government’s guarantee of deposits at two banks that failed earlier this month.
San Francisco-based First Republic continued its plunge on Monday, with its shares falling more than 47%, briefly hitting an all-time low just before the market closed and trading was halted multiple times during the day. day. Shares of First Republic have dropped 90% in the past month, with most of the losses occurring since March 8, Silicon Valley Bank announced plan to sell shares and spark what will turn into run a 42 billion dollar bank and next seized by federal regulators.
But even sweeping measures by the government to reassure depositors that their money is safe, small and regional banks remain uneasy, with the First Republic at greatest risk of another deadly runaway . Its customers have withdrawn about $70 billion in deposits since the collapse of SVB, or nearly 40% of its total holdings, the The Wall Street Journal report Sunday, citing people familiar with the matter.
Withdrawals slowed a bit last week after a consortium of 11 banks, including JPMorgan Chase And american bankgathered together and on Thursday announced a deposit of 30 billion dollars in the First Republic to help stabilize it. But in the long run, the bank is not safe, especially after many rating agencies including Fitch Rating, moodAnd Global S&P issued a negative credit rating for the bank this past week.
S&P Global’s ratings pointed to a number of problems at First Republic, including the fact that 68% of bank deposits were uninsured—though significantly lower than S&P Global’s rating. 94% of deposits are not insured at SVB. It also said that the First Republic had a sizable debt-to-asset ratio of 111%, meaning the bank lent more money than it had available in deposits.
“People are doing something that is perhaps irrational but completely understandable, which is transferring money,” said Mohamed El-Erian, an economist and president of Queens’ College at Cambridge University. . speak Bloomberg Sunday about massive withdrawals at small banks like the First Republic. “Where are they moving their deposits out of? Smaller and regional banks into larger banks,” he added.
The big banks actually had a large influx of customer deposits over the past week as people became concerned about the small banks’ ability to protect their funds. Bank of America added more than 15 billion dollars in deposits last week after the collapse of SVB. JPMorgan and Citi also began speeding up their usual sign-up process to accommodate the needs of more new account holders, Financial Times report last week.
While the big banks may benefit from the troubles of their smaller counterparts, many of them are also banding together on another rescue plan for the First Republic this week. JPMorgan CEO Jamie Dimon is leading talks with the heads of other major banks to turn some or all of their $30 billion deposits into a capital fund, while also exploring break a private investment or even sell the bank. the The Wall Street Journal report Monday.
“Following a $30 billion uninsured deposit on Thursday by the 11 largest banks in the country, and cash on hand, First Republic Bank is well positioned to manage short-term deposits. term,” a First Republic spokesman said. Luck. “This support reflects our belief in the First Republic and our ability to continue to deliver exceptionally solid service to our customers and communities.”
But the coming days and weeks will likely be shaky for the First Republic as well as for other small and regional banks. Meanwhile, banks are scrambling to shore up their reserves. Last week, the bank made a record loan 152 billion USD through the Federal Reserve’s discount window—a tool that banks can access for short-term loans and a last resort if they run out of cash. Last week, banks borrowed about $4.6 billion. The previous record was $111 billion borrowed during the 2008 financial crisis.
“This is going to be quite bumpy going forward,” said El-Erian Bloomberg risks for small and regional banks.
Update: This story was updated with First Republic stock at market close on Monday.
Clarification: This story has been updated to clarify the First Republic’s position on $30 billion in deposits offered by major banks.
This story was originally featured on Fortune.com
More from Fortune:
