First Republic shares tumble as turbulent week for market ends

Major indexes on Wall Street slide over bank contagion fears

Shares of First Republic Bank continued to slide on Friday, a day after 11 major US banks offered it a lifeline. Reuters

First Republic Bank led bank drops on Friday as all major indexes on Wall Street fell, closing out a turbulent week for global markets over banking crisis fears.

Shares of First Republic closed 32.8 per cent down at $23.03, a day after 11 major US banks announced $30 billion in deposits to help shore up the troubled financial institution.

First Republic shares are down about 81 per cent since the start of the year.

The San Francisco-based midsized lender has experienced a volatile week in trading, seeing wild swings in its stock price after Silicon Valley Bank collapsed last week.

Main indexes on Wall Street all fell as investors questioned the strength of the banking system. The Dow closed 384 points down, or 1.19 per cent. The S&P 500 fell 1.1 per cent, led by drops on banks, while the Nasdaq Composite closed 0.74 per cent lower.

Shares of the banks involved in First Republic's rescue had dropped between 3 and 4 per cent.

First Republic came under pressure after the collapse of SVB, Signature Bank and Silvergate Capital, which prompted the US Treasury Department, the Federal Reserve and the Federal Deposit Insurance Corporation to guarantee that depositors would be able to recover all of their money.

SVB Financial Group said on Friday that it had filed for Chapter 11 bankruptcy protection.

First Republic has large amounts of uninsured deposits above the $250,000 FDIC limit, which led to a run on the bank as customers withdrew their money and deposited it with other lenders.

As part of the agreement that was announced on Thursday by US banks, JP Morgan, Bank of America, Citigroup and Wells Fargo will each contribute $5 billion of uninsured deposits while Goldman Sachs and Morgan Stanley will each provide $2.5 billion.

BNY Mellon, PNC Bank, State Street, Truist and US Bank are each making uninsured deposits of $1 billion.

“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 banks said in a statement on Thursday.

The decision reflects “their confidence in the country’s banking system”, they said.

Treasury Secretary Janet Yellen spoke with JP Morgan chief executive Jamie Dimon, who then helped to secure the support of other banks in the decision to deposit $30 billion in First Republic Bank.

“Together, we are deploying our financial strength and liquidity into the larger system, where it is needed the most,” the banks said.

“Smaller and medium-sized banks support their local customers and businesses, create millions of jobs and help uplift communities. America’s larger banks stand united with all banks to support our economy and all of those around us.

“America’s financial system is among the best in the world, and America’s banks — large, mid-size and community banks — do an extraordinary job serving the banking needs of their unique customers and communities.

“The banking system has strong credit, plenty of liquidity, strong capital and strong profitability. Recent events did nothing to change this.”

On March 13, Moody's Investors Service had warned the US banking system faces risks amid the fallout from the collapse of SVB and two other lenders as the Fed raises interest rates to curb inflation.

The rating agency lowered its outlook on the US banking system to negative, from stable, due to the Fed's rapid monetary tightening and weak risk management that amplifies the underlying asset-liability management risks of banks.

On Wednesday, S&P Global Ratings and Fitch Ratings cut the rating of First Republic Bank's to junk status, citing the risk that customers will withdraw funds from the lender.

First Republic said it had more than $70 billion in unused liquidity, which it can rely on if needed to cover any further withdrawals by customers.

“The fact that American institutions banded together to preserve First Republic Bank sends a message to speculators that they should be cautious when betting against the US financial system,” said Naeem Aslam, chief investment officer at Zaye Capital Markets.

“Their actions have shown that Wall Street banks, as well as policymakers, are prepared to preserve the American financial system.”