Fate of US lender First Republic Bank hangs in balance as shares plummet again

NEW YORK – The most imperilled lender on Wall Street, First Republic Bank, slid closer to the precipice on Monday as its shares fell 47 per cent, down nearly 90 per cent since its close on March 8,

the day Silicon Valley Bank (SVB) incited a financial panic.

The calamitous drop in First Republic’s stock price,

even as shares of many of its peers steadied, highlights the fears that threaten to consume it. Until recently, the bank, based in San Francisco, boasted US$176 billion (S$235.4 billion) in deposits and an enviable list of wealthy clientele.

Last Thursday, some of the biggest names on Wall Street threw together a US$30 billion cash rescue for First Republic, hoping that would quell a run on the bank. But the plan appears not to have worked so far, failing to convince investors to stick by the bank.

The bank had also been trying to sell a stake in recent days, which quickly morphed into efforts to save the bank, said two people with knowledge of the matter. As at Monday afternoon, First Republic was entertaining some possible buyers, but discussions, if any, are in the early stages, one of the people said. The country’s biggest banks are unlikely to play saviour again, the two sources said, although the situation is in flux

The urgency only increased on Monday, after shares of First Republic fell so much that the New York Stock Exchange automatically halted trading 11 times to prevent a free fall.

Shares of First Republic have been hit especially hard because many investors are unsure whether the bank’s finances can withstand further calamity. The rush by government officials and the private sector to find swift solutions, meant to restore confidence in the health of the financial system, most likely exacerbated the recent panic.

First Republic lost roughly US$70 billion in deposits in recent weeks – nearly half of its total depositor base as at the end of last year – said two people with knowledge of the matter.

“All of this maths should work, but it is a confidence game, and when the confidence is gone, there is no easy solution,” said Mr Srinivas Namagiri, a former Deutsche Bank executive who helped unwind that institution’s busted bets after the 2008 global financial crisis.

Even though First Republic’s pain seems limited, at least for the moment, to the bank, the fear that has gripped lenders from coast to coast after SVB’s collapse is a reminder that just one failure can spook an entire sector.

Multiple recent downgrades of banks, including of First Republic, by ratings agencies like Moody’s have engendered further fear among investors and depositors. The daily headlines about trouble befalling one bank or another continue to foment uncertainty around the industry at large. The numerous troubles that felled Credit Suisse last week, and ended in a

US$3 billion takeover of the Swiss bank by bigger rival UBS on Sunday

, added another dark cloud.

The Federal Reserve reported that banks borrowed more than US$150 billion last week from its discount window, a record amount. Private equity firms have been invited to take a look at troubled bank assets and pick off parts they might find attractive. Executives of big banks are in constant touch with government officials, monitoring the health of smaller banks.

News reports that the Biden administration was in talks with Mr Warren Buffett, the chair of Berkshire Hathaway, who famously swooped in with billions to bolster Goldman Sachs during the nadir of the 2008 financial crisis, only signalled that the current panic might grow worse.

First Republic is fast becoming the poster child of those contradictions – the extraordinary efforts to save the lender appear to be worrying the markets more, not less. NYTIMES