San Francisco Chronicle

First Republic Bank stock drops further

- By Carolyn Said Reach Carolyn Said: csaid@sfchronicl­; Twitter: @csaid

First Republic Bank remained imperiled on Monday as its stock plunged still further and other big banks discussed taking extraordin­ary measures to rescue the San Francisco lender.

First Republic depositors have taken out about $70 million in the past few weeks, according to multiple reports. A recent $30 billion infusion by 11 big banks was designed to help staunch the flow and restore confidence in the bank — and the banking sector. Bank of America, Citigroup, JPMorgan Chase, Wells Fargo, Goldman Sachs, Morgan Stanley, BNY Mellon, PNC Bank, State Street, Truist and U.S. Bank put in that money as uninsured deposits.

But on Monday, First Republic’s stock showed that Wall Street was hardly reassured. After opening at $18.48, price per share sank throughout the day, eventually closing at the all-time low of $12.18, down 47 percent. Just two weeks ago, First Republic traded at around $122 a share. The jitters Monday followed a downgradin­g of First Republic’s credit rating on Sunday for the second time in a week, with S&P Global Ratings warning that yet another cut could still come.

First Republic’s woes follow those of neighborin­g Silicon Valley Bank in Santa Clara, which imploded this month after a similar flight by panicked investors. Both SVB and First Republic had to sell underwater, long-term securities to satisfy the deposit demands, thus locking in losses.

Several members of Congress, including Bay Area representa­tives Eric Swalwell, Mark DeSaulnier, Kevin Mullin and Zoe Lofgren, on Monday called for regulators to probe the underlying causes of SVB’s collapse, as well as whether anyone engaged in insider trading with its stock.

Regulators promised to backstop all deposits at SVB, even above the ordinary Federal Deposit Insurance Corp. cap of $250,000, but they have not made such a promise for First Republic. At SVB, some 94 percent of all deposits were above the FDIC cap. At First Republic, about 68 percent exceed the insured amounts.

Meanwhile the leaders of major banks were discussing what further rescue measures they might take, the Wall Street Journal reported. One idea was a direct investment by the banks into First Republic, perhaps converting some of the $30 billion they deposited into the bank last week into direct capital infusions, the Journal said.

Jamie Dimon, the CEO of JPMorgan Chase was reportedly leading the banks’ discussion­s, the Journal reported.

“This is a move in the right direction,” said Hersch Shefrin, a finance professor at Santa Clara University. “Depositors at First Republic are now looking at much more protection, meaning a significan­tly larger capital cushion. In addition, JPMorgan has looked at First Republic’s assets and by (potentiall­y) taking an investment position (is) sending a positive signal about the soundness of that position.”

Ross Levine, a finance professor at the Haas School of Business at UC Berkeley, likewise said the banks’ potential action would “represent an additional vote of confidence in (First Republic) and a significan­t effort by the major banks to reduce public concerns about medium-sized banks more generally. The big banks would be putting serious resources on the line, indicating their confidence in First Republic Bank and demonstrat­ing their commitment to communicat­e that confidence to the public.”

At the same time, First Republic reportedly is exploring selling itself to another bank, or selling pieces of itself to other banks or private equity firms, the New York Times reported. Regulators are still seeking a buyer for SVB.

The stakes go far beyond the fate of a small regional bank, experts said. Continued chaos in the banking industry has the potential to trigger a range of negative economic consequenc­es, from tighter credit, to increased layoffs, to even a recession.

S&P Global said Sunday that the rescue infusion offered by the major banks could provide nearterm relief, but longerterm profitabil­ity and other problems remain.

“The $30 billion in deposits that First Republic reported it will receive from 11 large U.S. banks should ease near-term liquidity pressures, but it may not solve the substantia­l business, liquidity, funding, and profitabil­ity challenges that we believe the bank is now likely facing,” a statement from S&P said.

First Republic said it had no comment on Monday’s stock market slide and reports about a further bank rescue. However, it released a statement that said: “Following Thursday’s uninsured deposit of $30 billion by the 11 largest banks in the country, together with cash on hand, First Republic Bank is well positioned to manage short-term deposit activity. This support reflects confidence in First Republic and its ability to continue to provide unwavering exceptiona­l service to its clients and communitie­s.”

“Depositors at First Republic are now looking at much more protection, meaning a significan­tly larger capital cushion.”

Hersch Shefrin, finance professor at Santa Clara University

 ?? Juliana Yamada/The Chronicle ?? First Republic Bank stock plunged Monday, with banks exploring new ways to help the lender.
Juliana Yamada/The Chronicle First Republic Bank stock plunged Monday, with banks exploring new ways to help the lender.

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