By Chris Dorrell
First Republic’s shares fell nearly 40 per cent on Wednesday before recovering slightly as speculation grows that the ailing lender will have to be rescued.
At the time of writing, its share price was down 21 per cent.
Yesterday, the San Francisco-based bank’s share price closed over 30 per cent lower after it revealed on Monday evening that it had seen over $100bn in deposit outflows in the first quarter. Over the year to date, its share price is down over 95 per cent.
Investors are concerned that the huge amounts of expensive short-term funding the bank took on to secure its survival will weigh significantly on profitability going forward.
Bloomberg Intelligence’s Herman Chan said: “The bank’s funding costs are set to march higher in 2Q and beyond as First Republic is now reliant on higher cost deposits and wholesale borrowings to plug the hole that was created from the 41 per cent drop in deposits in 1Q.
“With a loan portfolio that’s mostly fixed rate, the resulting margin will get squeezed and contribute to earnings losses for the foreseeable future,” he continued.
The bank is attempting to come up with a plan for its survival, including cutting 25 per cent of its staff in the next quarter. According to Bloomberg, First Republic is attempting to sell as much as $100bn in its assets to pay off its debts.
But the bank faces a race against time and the government may intervene well before any plans can come to fruition. Yesterday, the Financial Times reported that the regulators and financiers were scrambling for a plan to prop up the teetering bank.
Options under consideration include a rescue by a coalition of larger US banks and a takeover by the Federal Deposit Insurance Corporation (FDIC) who would then make all deposits available for customers. However, CNBC reported the government is currently unwilling to intervene.
Earlier in March a group of six banks including JP Morgan and Wells Fargo parked $30bn in the bank in an attempt to secure its survival.
First Republic has been hit extremely hard since the collapse of Silicon Valley Bank (SVB) due to its combination of uninsured deposits and a large portfolio of illiquid low-yielding assets.
While First Republic’s shares have continued to take a beating, other regional lenders seem far more secure. Western Alliance slipped 1.6 per cent while PacWest climbed 6.3 per cent.
The KBW regional bank index was 0.6 per cent higher.
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