Fate of the First Republic Hangs in the Balance as Stocks Drop Again

Wall Street's most threatened bank, First Republic, slid closer to the abyss Monday as its shares plunged 47 percent, down nearly 90 percent since closing on March 8, the day Silicon Valley Bank's woes sparked a financial panic.

First Republic's dire share price drop, even as the shares of many of its peers stabilize, highlights the fear that threatens to consume it. Until recently, the San Francisco-based bank boasted $176 billion in deposits and an enviable list of wealthy clients.

Last Thursday, some of the biggest names on Wall Street staged a $30 billion cash rescue for First Republic, in hopes it would stop a bank run. But the plan doesn't appear to have worked so far, failing to convince investors to stay in the bank.

The bank has also tried to sell shares in recent days, which quickly turned into a bid to bail out the bank, said two people familiar with the matter. On Monday afternoon, First Republic hosted several potential buyers, but discussions, if any, were in their early stages, one of the people said. The country's biggest banks are unlikely to be the saviors anymore, the two said, even though the situation is changing.

The urgency only increased Monday, after First Republic shares plunged so much that the New York Stock Exchange automatically halted trading 11 times to prevent a free fall. Monday's defeat also dealt a blow to bank executives as, as late as Sunday, senior leaders and board members believed the bank had enough leeway and cash from its own clients to weather further chaos, according to two people familiar with the bank. . discussion.

At the very least, they assumed the First Republic had weeks, not days, to sort out its problems, either by raising new capital or selling itself, said a person familiar with the matter.

SVB's collapse, along with the failure of Signature Bank just days later, hit the shares of many other medium-sized lenders. But on Monday, the stock fared better. Shares of Californian bank PacWest rose. Western Alliance, based in Phoenix, fell 7 percent, while Comerica's and Zions Bank's hovered around flat. The KBW Bank Index, which tracks stocks of 24 banks, rose 1 percent, recovering only partly from Friday's more than 5 percent decline.

First Republic stock was hit particularly hard as many investors were unsure whether the bank's finances could withstand further debacle. Bank executives and advisers have been discussing heatedly about how to find more help, but the escalating problems at First Republic are a sign that government officials and the private sector are rushing to find a quick solution, meant to restore confidence in the health of the financial system. , most likely exacerbating the recent panic.

A spokesman for the Federal Deposit Insurance Corporation, the country's main bank regulator, declined to comment. A spokesman for First Republic declined to comment on Monday's decline or give a figure for whether bank deposits rose or fell. In earlier statements, he said the bank “is well positioned to manage short-term deposit activity.”

First Republic lost about $70 billion in deposits in recent weeks – nearly half of its total depositor base at the end of last year – said two people familiar with the matter.

It all adds up to evidence that a mix of short-term fixes such as loans, attempts to entice saviors to buy all or part of the bank and occasional statements of confidence from bank executives and government officials have not stopped banks from falling. If anything, despite the enormous amounts of money involved, the intervention has reached the application of Band-Aids to wounds that may need surgery.

“All this math has to work, but it is a game of confidence, and when confidence is lost there are no easy solutions,” said Srinivas Namagiri, a former Deutsche Bank executive who helped loosen the institution's stakes after the 2008 financial crisis.

While the First Republic's pain appears to be confined, for now at least, to banks, the fear that gripped banks from coast to coast after the SVB's collapse is a reminder that only one failure can terrify an entire sector.

Several recent downgrades of banks, including First Republic, by rating agencies such as Moody's have raised further fears among investors and depositors. Daily headlines about trouble befalling one bank or another continue to generate uncertainty across the industry at large. The woes that plagued Credit Suisse last week, and ended in a $3 billion takeover of the Swiss bank by bigger rival UBS on Sunday, added another dark cloud.

The Federal Reserve reported that banks borrowed more than $150 billion last week from the discount window, a record amount. Private equity firms have been invited to look at troubled bank assets and take shares they may be interested in. The executives of the big banks are in constant contact with government officials, monitoring the health of the small banks.

And news reports that the Biden administration is in talks with Warren Buffett, the famous Berkshire Hathaway chairman whose billions of dollars backed Goldman Sachs during the nadir of the 2008 financial crisis, only hint that the current panic may be getting worse.

The First Republic quickly became the poster child for the contradiction—an extraordinary attempt to save lenders seemed to worry the market more and more.

On Thursday, the country's 11 largest banks provided First Republic, the country's 14th largest bank, $30 billion in short-term loans to shore up its finances as depositors left en masse. The move was meant to be a show of support for First Republic, as the amounts that banks – including JPMorgan Chase, Bank of America, Citigroup and Wells Fargo – lend out are not insured. In other words, the big banks would lose their money if the First Republic failed, unless the government agreed to pay them back.

Several of those banks, including JPMorgan, have been involved in further discussions about how to stabilize the First Republic.

First Republic has also seen several downgrades in its credit rating in recent days. On Friday, Moody's said it was downgrading the bank because of its increasing reliance on short-term loans, including from the Federal Reserve and a consortium of banks. Paying back interest on loans can be expensive for banks trying to shore up their cash.

“Moody's believes these high borrowing costs, combined with the high proportion of fixed rate assets in the bank, are likely to have a major negative impact on First Republic's core profitability in the coming quarters,” the agency said in a note. Moody's also said it was unclear how First Republic would find a way to return to being profitable.

Standard & Poor's, in its own downgrade on Sunday, said the bank continues to face “substantial business, liquidity, funding and profitability challenges.”

Joe Rennison reporting contribution.