One of the largest financial institutions to be hit in last month’s banking crisis is close to joining Silicon Valley Bank if it does not find a solution.
- A Monday earnings report says that First Republic Bank lost 40%, nearly $100 billion, of its deposits by the end of last month, which resulted in a massive stock plunge—dropping from $150 per share to $5 in a few weeks.
- Stock trading for First Republic became volatile enough for Wall Street to halt trading eight times on Wednesday.
- Advisors are attempting to line up new buyers for shares in First Republic to prevent the bank from losing the ability to produce fresh capital and potentially collapsing. It is also entertaining a buyout, selling assets, or restructuring.
- A Wednesday CNBC report notes that the federal government is generally unwilling to come to the company’s aid, setting it up for further volatility and uncertainty.
Why It’s Important
March saw two of the most intense weeks in banking history with the second and third-largest bank collapses in U.S. history—Silicon Valley Bank and Signature Bank. The collapses—spurred in part by the Federal Reserve’s monetary tightening policies and poor oversight—similarly harmed First Republic.
The San Francisco-based bank—which specializes in wealth-management services for high-earning customers—required a $30-billion bailout in March from 11 larger banks to prevent a similar collapse to Silicon Valley Bank.
First Republic Bank is now staring down a dangerous precipice, one frightening enough that it could require the federal government to intervene. The bank is facing a crisis caused by poor management within the company that led the borrower to give out large low-rate mortgages that no longer function properly in a high-interest rate environment, The Wall Street Journal notes.
With a notably high percentage of First Republic’s deposits not covered by FDIC insurance, the bank is facing a similar situation to Silicon Valley Bank. It may not have a clear or simple way to resolve its internal mismanagement without further bailouts.
“They’ve never been super profitable. Now you’re not growing and you’re layering on really high borrowing and funding costs,” says Jannery Montgomery Scott analyst Tim Coffey.
“We believe there will have to be a broader restructuring of First Republic led by the biggest banks, which have deposited $30 billion in the bank,” says TD Cowen analyst Jaret Seiberg.