First Republic shares plummet after another S&P credit rating hit
Investor fears over First Republic Bank continue despite Wall Street rescue deal
Regulators likely played 'behind the scenes' role in First Republic's big bank bailout
The Wall Street Journal chief economics correspondent Nick Timiraos discusses the macro impact from America's biggest banks bailing out First Republic Bank.
First Republic Bank stock continued its free fall on Monday after the credit rating of the San Francisco-based bank was downgraded deeper into junk status by S&P Global.
S&P cut the bank's credit rating three notches to B+ from BB+ on Sunday and warned that another downgrade is possible.
First Republic saw its shares plummet about 47% during trading on Monday, leading losses among regional banks. The stock – which hovered around $115 per share on March 8 – was trading around $12 per share on Monday, the lowest level in a decade and down about 87% from just one month ago.
| Ticker | Security | Last | Change | Change % |
|---|---|---|---|---|
| FRC | NO DATA AVAILABLE | - | - | - |
| JPM | JPMORGAN CHASE & CO. | 246.25 | -3.47 | -1.39% |
| BAC | BANK OF AMERICA CORP. | 47.04 | -0.47 | -0.99% |
| WFC | WELLS FARGO & CO. | 75.28 | -0.89 | -1.17% |
| CITI | NO DATA AVAILABLE | - | - | - |
The prolonged slump came amid fears First Republic may need to raise more funds despite an unprecedented $30 billion rescue deal announced last week by some of the nation's biggest banks.
As part of the deal, JPMorgan Chase, Citigroup, Bank of America and Wells Fargo will each contribute $5 billion; Goldman Sachs and Morgan Stanley will deposit about $2.5 billion each, according to a news release from the banks. Truist, PNC, U.S. Bancorp, State Street and Bank of New York Mellon will kick in about $1 billion apiece.
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"This action by America’s largest banks reflects their confidence in First Republic and in banks of all sizes, and it demonstrates their overall commitment to helping banks serve their customers and communities," the group said in a joint statement.
Federal regulators lauded the move, which came after several brutal and volatile days for First Republic shares.
But there are fresh efforts underway to stabilize the bank, according to The Wall Street Journal.
JPMorgan Chase CEO Jamie Dimon is leading discussions with the top executives of other big banks about how to boost First Republic's capital. Among the options on the table are an investment in First Republic by the banks themselves; a sale; or an outside liquidity injection, the Journal reported.
Customers yanked billions in deposits out of First Republic last week, prompting the bank to shore up its finances with additional funding from the Federal Reserve and JPMorgan. That first cash infusion gave the bank – which boasts $213 billion in assets – roughly $70 billion in unused liquidity.
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A First Republic Bank branch in San Ramon, California, on March 16, 2023. (Smith Collection / Gado / Getty Images / Getty Images)
The concerns at First Republic and other midsize regional banks began after the historic failure of Silicon Valley Bank – the 16th largest lender in the country – last week following a liquidity crunch. It marked the largest U.S. bank failure since the global financial crisis in 2008.
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SVB, which largely catered to tech companies, venture capital firms and high-net-worth individuals, saw a huge boom in deposits during the pandemic, with its assets surging from $56 billion in June 2018 to $212 billion in March 2023. The bank responded by investing a large chunk of that cash into long-term U.S. Treasury bonds and other mortgage-backed securities. However, that strategy backfired when the Fed embarked on the most aggressive interest-rate hike campaign since the 1980s, and the value of those securities tumbled.
That coincided with a decline in available funding for startups, which started drawing down more of their money to cover their expenses, forcing the lender to sell part of its bond holds at a steep $1.8 billion loss. When depositors realized that SVB was in a precarious financial situation, a bank run ensued.