First Republic rout resumes as rescue package fails to stem drop

FIRST Republic Bank shares tumbled again on Friday (Mar 17), set for their worst week ever, as sentiment around the lender remained fragile even after proposals for US$30 billion of aid from Wall Street’s biggest banks.

Shares of First Republic sank as much as 23 per cent on Friday, triggering at least one volatility halt, bringing its losses for the week to a record 68 per cent. The drop comes after the bank reported that its borrowings from the US Federal Reserve varied from US$20 billion to US$109 billion from Mar 10 to Mar 15, said it was suspending dividend payments and disclosed a dwindling cash position.

“We find it difficult to come up with a realistic scenario where there’s residual value for First Republic common equity holders,” Wedbush analyst David Chiaverini wrote in a note to clients. Chiaverini downgraded the stock to neutral, cutting his price target to US$5 from US$140.

Atlantic Equities John Heagerty also downgraded First Republic to neutral citing “unprecedented uncertainty” surrounding the California lender. He said a return to prior leverage ratios for the bank “may well necessitate a capital raise.”

The renewed selling pressure follows a volatile session on Thursday, when the stock plunged as much as 36 per cent before ending the day with a 10 per cent gain after the biggest banks on Wall Street, including JPMorgan Chase, Bank of America, Citigroup and Wells Fargo, pledged US$30 billion of fresh cash for the lender.

Other regional banks are also down on Friday, with PacWest Bancorp falling as much as 15 per cent, Western Alliance Bancorp dropping 12 per cent and KeyCorp down 6 per cent. Meanwhile, the SPDR S&P Regional Banking ETF fell as much as 4.4 per cent.

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Larger banks joined in the selloff, with Citigroup down 2.4 per cent, Morgan Stanley dropping 1.9 per cent, and Wells Fargo falling 3.5 per cent. The KBW Bank Index fell 4 per cent, set for its lowest close since November 2020.

Some investors questioned the move to aid First Republic. Pershing Square’s bill Ackman for instance, said in a tweet that spreading the risk of financial contagion to achieve “a false sense of confidence” in the lender was “bad policy.”

First Republic’s shares have been hit hard by the turmoil in the banking sector, after the demise of three lenders knocked confidence in the industry and saw customers of regional lenders pull deposits. Silicon Valley Bank’s former parent company filed for chapter 11 bankruptcy on Friday. A meltdown in Credit Suisse Group’s shares on worries over the bank’s financial health further dampened sentiment. BLOOMBERG