First Republic Stock Crashes But Bounces Back As Big Banks Reportedly Closing In On $30 Billion Rescue Plan

Topline

First Republic shares staged a dramatic comeback Thursday as investors bought into reports indicating the struggling San Francisco-based regional bank could soon be saved by billions of dollars in fresh capital from larger financial institutions, staving off previously mounting concerns First Republic could soon go the way of its failed peer Silicon Valley Bank.

First Republic is reeling from other smaller banks’ failures.

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Key Facts

First Republic’s stock fell as much as 36% to $19.80 in early Thursday trading after it received two credit downgrades and reportedly mulled a sale, nearly hitting its lowest share price since going public in 2010.

But First Republic shares rose rapidly in the afternoon after the Wall Street Journal reported large banks including JPMorgan Chase and Morgan Stanley are discussing a deal to provide liquidity to the bank.

Bloomberg reported a government-led effort could help top banks deposit $30 billion at First Republic, though CNBC notes the group of banks is in talks to deposit closer to $20 billion.

First Republic’s stock rose 22% to $38 by 1:10 ET, the largest daily gain of any company with a market capitalization over $5 billion.

Shares of the embattled institution are still down 67% since last Wednesday, when Silicon Valley Bank’s liquidity issues hit a fever pitch.

Key Background

First Republic’s Sunday message that it secured $70 billion in further liquidity from the Federal Reserve and JPMorgan Chase did little to calm investors or creditors, as S&P Global Ratings and Fitch Ratings each lowered its rating for First Republic to junk on Wednesday. The sinking share prices came as investors fretted over the company’s future following the recent failures of Silicon Valley Bank and Signature Bank and closure of Silvergate Capital. Founded in 1985, First Republic largely caters to high net worth clients and held $176 billion in deposits as of the end of 2022. Shares of fellow regional banks PacWest and Western Alliance tanked 19% and 10% apiece Thursday, with each stock down over 60% since last Wednesday. Though President Joe Biden indicated in a Monday speech the government would likely guarantee even uninsured depositors would get their money back in future failures, shareholders would not get their investments back in a scenario where a bank stock loses its value, contributing to the selloffs as equity investors look to avoid being caught holding the bag.

What To Watch For

Following Silicon Valley Bank’s stunning and sudden unraveling, customers have reportedly moved billions of dollars in funds from regional banks to large banks such as Bank of America, though the largest bank stocks have been far from immune from suffering losses, with the 10 largest U.S. banks shedding roughly $200 billion in market capitalization over the past week.

Big Number

68%. That’s how much of First Republic’s deposits are uninsured by the Federal Deposit Insurance Corporation as they exceed the $250,000 limit, according to S&P Global Ratings. These uninsured deposits are the “most susceptible to withdrawal,” according to the rating agency, after Silicon Valley Bank’s failure left its largest customers in limbo until federal regulators stepped in Sunday.

Tangent

Long-embattled Swiss bank Credit Suisse secured $54 billion in funding from Switzerland’s central bank early Thursday, helping calm fears that it too could soon go under. New York-listed shares of Credit Suisse gained 6% on Thursday.

Crucial Quote

“We don’t know yet whether the consequences of easy money and regulatory changes will cascade throughout the U.S. regional banking sector with more seizures and shutdowns coming,” BlackRock CEO Larry Fink wrote in a Wednesday letter to investors, predicting Silicon Valley Bank’s shutdown could simply be the first “domino to fall” in the American banking system.