Shares in First Republic Bank plummeted again Friday after a financial bailout from major US banks pouring $30 billion into their accounts failed to calm investor fears.
Shares of First Republic fell more than 20 percent in the first session after 11 of the largest US banks, led by JPMorgan Chase, said they would deposit $30 billion with the California-based lender in a bid to bolster its finances. .
However, a person briefed by federal officials on First Republic’s liabilities said that as of noon in New York, the outflow of deposits on Friday was negligible. “I can say with 99 percent certainty that the share price is different from the deposit outflow,” the person said.
Shares of First Republic are down about 75 percent since concerns arose last week about depositors withdrawing cash from several medium-sized U.S. lenders sparked by the sudden collapse of Silicon Valley Bank.
First Republic said on Thursday that daily deposit outflows had “slowed significantly” but that it suspended its dividend and increased lending from the Federal Reserve and the Federal Home Loan Bank, seen as the two lenders of last resort to US banks.
The Fed’s First Republic loans ranged from $20 billion to $109 billion from last Friday to Wednesday at an overnight rate of 4.75 percent, and since last Thursday, the lender has increased the FHLB’s short-term loans by $10 billion at a rate of 5.09 percent. per cent.
“The significance of the changes to FRC’s balance sheet in just one week is staggering in our view, and together with the suspension of its common stock dividend, paints a very bleak outlook for the company and its shareholder,” KBW analysts wrote, citing to the bank’s ticker on the New York Stock Exchange.
In a research note Friday, Wedbush analysts downgraded First Republic’s stock to “neutral” from “outperform” on expectations of higher interest costs from borrowing to bolster its liquidity position.
Wedbush also warned that there would be “minimal or no” residual value for common stockholders if the bank were eventually sold, as the value of its loan and securities would likely have to be written down in the event of a sale.
“We believe in a sale of FRC to [a] a larger entity should be beneficial to the banking system as a whole, and should help reduce contagion fears,” Wedbush wrote.
“However, given the fair value markers embedded in both the loan and securities portfolios, we find it difficult to come up with a realistic scenario where there is residual value for FRC common stock holders.”
Shares in other regional U.S. banks also fell Friday, including a 13 percent drop for Western Alliance Bancorp, a 7 percent drop for Comerica, an 8 percent drop in KeyCorp and a 6 percent drop in Zions.
Stocks of the largest banks such as JPMorgan and Bank of America, which investors say are less prone to large-scale deposit withdrawals, also traded lower.
An industry observer said some shareholders could sell First Republic stock because the big banks would get ahead of them in the event of bankruptcy proceedings.