The situation of First Republic Bank it is still not clear at all and the market has understood this by responding with a new drop in shares yesterday. To kick off the new sales were the new statements yesterday, different from those of the day before, by the Secretary of the Treasury Janet Yellen that insurance for all bank deposits cannot be discussed without de approvalthe United States Congress.
First Republic, whose shares have lost much of their value since the US banking crisis began on March 8, is negotiating with other banks and investment firms about possible interventions, just as it did with the acquisition by US regulators Silicon Valley Bank (SIVB.O) and Signature Bank (SBNY.O) which had been hit by bank runs by their account holders.
Morgan Stanley analyst Manan Gosalia had set a $54 best-case-scenario price target for First Republic stock in a report earlier this week. But the title yesterday closed at 13,33 dollars, with a drop of 15,5%. The optimistic scenario was based on a path where the Federal Deposit Insurance Corp (FDIC) insured all deposits of consumers until the end of the banking crisis, triggering a return of most customer deposits, according to the report. But the latest statements by Yellen change the scene again.
Insurance hope for account holders has been debunked by Yellen
But this hope was resized yesterday, after that Yellen said in a hearing before the US Senate Subcommittee on Financial Services that it was not considering such a move without thecongressional approval and that he was looking into the risks of banks case by case. “I have not considered or discussed anything to do with global insurance or deposit guarantees,” she said. Instead the day before Yellen herself had said to be ready to step in to protect depositors at smaller US banks who have experienced a flight of deposits, which threatens further contagion.
According to RJ Grant, head of trading at Keefe, Bruyette & Woods, yesterday's statements from Yellen affected all regional bank stocks. “Yellen definitely used a different tone. There was a sense that behind the scenes in Washington they were talking about protecting depositors,” Grant said.
The Swedish fund Alecta has sold its entire stake in First Republic bank at a loss
Not a few are those who are moving to save themselves in some way. For example, Alecta, Sweden's largest pension fund, announced that on March 15 it sold its entire stake in First Republic Bank, despite recording a loss of 7,5 billion Swedish crowns, equal to about 680 million euros. “The uncertainty about the bank's future was too great, partly due to the institution's rating being cut to junk,” CEO Magnus Billing told Bloomberg.
Alecta, which had begun buying shares in First Republic in 2019, was the bank's fifth-largest shareholder. The pension fund, which manages the savings of 2,6 million Swedes, was already on the gridiron after losing $1,1 billion on investments in SVB and Signature.
Jp Morgan at the forefront with 11 other banks to inject capital
The CEO of JPMorgan (JPM.N) Jamie Dimon met on Wednesday with Lael Brainard, director of the White House National Economic Council, a person familiar with the situation told Reuters. The subject of the meeting is unclear, but it came as First Republic efforts continue to get a capital injection. Dimon himself has set to work with 11 other banks to convert all or part of the $30 billion granted last week to First Republic Bank, hit by $70 billion in outflows, into equity
An emergency intervention on the "Credit Suisse" model would be welcome
Il Morgan Stanley report considers that a potential extension of FDIC insurance could lead the majority of First Republic customers to go back to the bank. Banks involved in First Republic bailout talks are asking for a loss-sharing deal with the US government similar to terms agreed by Switzerland, an industry source quoted by Reuters UBS Group (UBSG.S) in the emergency takeover of rival Credit Suisse (CSGN.S). If attempts to raise new capital fail, the bank is considering how to downsize, a source told Reuters.
Morgan Stanley analysts wrote that even if it gets a cash injection, the lender probably will suffer losses on the securities of its so-called “held-to-maturity” portfolio. According to estimates by Morgan Stanley analysts, a potential acquirer would need to absorb $26,8 billion of mark-to-market losses from the First Republic's loan and stock portfolios, while another $9,5 billion is needed to recapitalize the bank. In a worst-case scenario, First Republic shares would drop to $1, according to analysts at Morgan Stanley.
The 9th-largest US bank by assets headquartered in San Francisco began to see its stock market valuation plummet starting on March 30. Despite the intervention of Wall Street giants, including JP Morgan, Bank of America and Citigroup, with their deposit of 19 billion dollars in favor of the credit institution, on Sunday XNUMX March the rating agency Standard & Poor's downgraded the bank's long-term credit rating from BB+ to B+, warning that it will further downgrade it if there is no progress in stabilizing deposits. First Republic Bank assured that, with the $30 billion injection, the lender is "well positioned to handle the short-term deposit business."
