Bank Crisis: First Republic Bank Flies On $30 Billion Rescue, Regional Banks Reverse

First Republic stock skyrocketed into the green Thursday afternoon following reports a group of large banks will deposit $30 billion to shore up its liquidity. Regional banks reversed positive following the First Republic Bank (FRC) news. Larger banks pared losses after their retreat on Wednesday.

Treasury Secretary Janet Yellen assured Congress that the banking system remains strong during testimony Thursday. Meanwhile, bank stocks leaned toward another day of losses Thursday after U.S. financial institutions took a beating Wednesday.

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Secretary Yellen is set to testify before the Senate Finance Committee beginning at 10 a.m. ET. She is expected to tell Congress “that our banking system remains sound, and that Americans can feel confident that their deposits will be there when they need them,” according to prepared remarks. Yellen will also highlight Federal Reserve and FDIC plans to support the banking system, including the new lending facilities.

First Republic Poised For $30 Billion Deposit

On Thursday, JPMorgan, Morgan Stanley (MS) and several other large banks agreed to deposit $30 billion with First Republic to help stabilize the bank, Bloomberg reported. The effort was orchestrated by the U.S. government and also included Citigroup (C), Bank of America (BAC), Wells Fargo (WFC), U.S. Bancorp (USB), PNC Financial (PNC) and Truist (TFC).

The deal is close, but not done yet, according to the sources. CNBC reported that the deposit amount is a moving target, and could start closer to $20 billion. The plan does not call for a takeover of First Republic. FRC stock rebounded Thursday afternoon, up 10.6% after an initial 25% spike following the news.

First Republic Bank stock dove more than 31% early Thursday after Bloomberg reported that the San Francisco-based outfit is exploring strategic options to shore up liquidity, including a capital raise and potential sale.

FRC stock is down roughly 75% so far this month as the closures of Silicon Valley Bank and Signature Bank sparked a bank crisis.

First Republic Ratings Downgraded

On Wednesday, ratings agencies S&P Global and Fitch downgraded First Republic, citing liquidity and funding risks. S&P lowered FRC stock to a speculative-grade BB+ from its previous A- rating. Fitch gave First Republic a BB grade, down from A-, and put the bank on negative rating watch. On Monday, Moody’s announced it was reviewing First Republic and five other regional banks for potential downgrades.

The news is a dramatic turn for First Republic. On Sunday, it secured additional liquidity from the Federal Reserve Bank and JPMorgan (JPM), bringing the total available funding to more than $70 billion. First Republic CEO Jim Herbert told Jim Cramer the bank is operating “business as usual” on Monday. At the time, Herbert noted the bank wasn’t seeing many withdrawals of more $250,000, and that the additional funding from JPMorgan is working.

“First Republic’s capital and liquidity positions are very strong, and its capital remains well above the regulatory threshold for well-capitalized banks,” CEO Jim Herbert said in the funding announcement.

Bank Stocks

Regional banks followed First Republic higher Thursday afternoon. Beverly Hills, Calif.-based Pacific West Bank (PACW) rose 8% after opening to an 18% loss. Zions Bancorp (ZION) fell 3.8% in the morning. Western Alliance (WAL) leapt 17%, after early losses nearly erased Wednesday’s 8.3% rebound.

JPMorgan rose 2.3% Thursday after falling 4.7% on Wednesday. Wells Fargo (WFC) edged 2.4% higher following its 3.2% dive Wednesday. Goldman Sachs (GS) traded up 1.6%, following its 3% dip Wednesday.

Credit Suisse American depositary receipts rebounded 7%, following its $54 billion injection from the Swiss National Bank. Credit Suisse ADRs cratered as much as 30% Wednesday.

You can follow Harrison Miller for more stock news and updates on Twitter @IBD_Harrison

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