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Wednesday, March 22, 2023

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First Republic shares plunge nearly 33% despite $30 billion support

The actions of the First Republic Bank they plunged almost 33% on Friday, leaving them down more than 80% in the last 10 sessions, despite a bailout package with $30 billion in deposits injected by big US banks.

The embattled lender was in talks to raise money from other banks or private equity firms by selling new shares, The New York Times reported Friday afternoon, citing three people with knowledge of the process. The bank could also negotiate its sale, according to the report. First Republic declined to comment.

Concerns about the bank’s health led top US power brokers, including Treasury Secretary Janet Yellen, Federal Reserve Chairman Jerome Powell and JPMorgan Chief Executive Jamie Dimon, to draw up a unprecedented bailout deal on Thursday.

The lender also said it had borrowed up to $109 billion from the Fed and another $10 billion from the Federal Mortgage Loan Bank on March 9.

“The significance of the changes to (the company’s) balance sheet in just one week is staggering (…) and coupled with the suspension of the common stock dividend, paints a very bleak picture for the company and shareholders,” said KBW managing director Chris McGratty.

Late on Friday, Moody’s downgraded First Republic Bank’s debt rating to reflect its “major challenges”.

Shares of Wall Street banks – including JPMorgan Chase & Co, Citigroup Inc, Bank of America Corp and Wells Fargo & Co – that participated in the bailout of the San Francisco-based lender fell between 2% and 4%. on Friday.

Los Angeles-based PacWest Bancorp, a holding company for Pacific Western Bank, plunged nearly 19% during trading on Friday. At the close of business, the bank said in a statement that it had more than $10.8 billion in cash on hand, more than its total uninsured deposits.

Founded in 1985, First Republic had $212 billion in assets and $176.4 billion in deposits at the end of last year, according to its annual report.

“Possibly the market is looking for a full sale/buy instead of a capital injection”, said John Petrides, a portfolio manager at Tocqueville Asset Management, adding that the situation is not over.

The bank’s profit profile is “clearly deteriorated” and the “new deposits effectively cover the $30.5 billion of uninsured deposits still remaining on FRC’s balance sheet, giving time for it to likely explore a sale”Jefferies analysts led by Ken Usdin wrote in a note to clients.

The banks that were part of the bailout package are its most obvious suitors for a takeover, but the US government is less likely to back a buyout by the largest banks, said a source who declined to be named due to the sensitivity of the deal. situation.

The rescue package came less than a day after Swiss bank Credit Suisse obtained an emergency loan from the Swiss central bank of up to $54 billion to bolster its liquidity.

Fed data showed on Thursday that banks requested a record $152.9 billion in emergency liquidity from the US central bank in recent days, surpassing the previous high set during the height of the financial crisis.

The loans highlight the “financing and liquidity tensions in banks, driven by the weakening of depositor confidence”Moody’s said. The rating agency had downgraded its outlook on the US banking system to negative earlier this week.

Source: Reuters

Source: Gestion


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