New York () — The fate of First Republic Bank looks grim.
The bank’s shares plunged about 75% this week, after a disappointing first-quarter earnings report released Monday reignited Wall Street fears of a banking crisis and catalyzed an exodus from First Republic shares. While a small uptick on Thursday suggested investors were hoping someone might step in to save the struggling lender, things ultimately took a turn for the worse.
A source familiar with the administration told on Friday that the White House has no new plans to bail out the troubled lender, dashing hopes of government intervention. Reports that the bank will likely go into receivership by the FDIC began to surface, shattering optimism that private-sector help might be in the offing. on the way. The bank’s shares plunged roughly 37%.
It is unknown if the bank will collapse. While there was a chance it could happen this Friday, the day financial institutions have historically failed, it could happen any other day. Or, the bank could survive the turmoil.
But that will be hard to do without a lifeguard. The bank received about $100 billion in support from big banks last month as the collapses of Silicon Valley Bank and Signature Bank sent investors and depositors fleeing regional banks and cast doubt on the health of the financial sector.
First Republic shares are down about 97% this year.
signs of trouble
The troubles for First Republic began to brew this week after the company reported that its total deposits fell 41% in the first quarter to $104.5 billion. Analysts had expected deposits of about $136.7 billion.
CEO Michael Roffler tried to reassure frightened shareholders on the company’s 13-minute conference call that deposit activity had stabilized since late March.
About two-thirds of First Republic’s deposits were not FDIC-insured when the bank turmoil took hold in March, down from 94% at Silicon Valley Bank. But at the end of 2022, First Republic had a whopping 111% ratio for long-term loans and investments to deposits, according to S&P Global. In other words, the bank has lent and invested more money than it has invested in deposits, subjecting it to liquidity risk.
Roffler said on the bank’s earnings call that the bank had twice the available liquidity of uninsured deposits as of April 4, excluding the $30 billion received from big banks.
But investors remained on edge and a brutal sell-off began. First Republic shares plunged 50% on Tuesday and soared in the days that followed.
Behind the scenes, the First Republic scrambled to save itself once again. The advisers lined up potential buyers of its shares and competed for big US banks to buy the bank’s bonds, according to CNBC.
Shares rose about 9% on Thursday as investors breathed a sigh of relief after other banks reported earnings without additional bad news, before plummeting once more.
Deja vu
First Republic’s fight for survival comes just over a month after Silicon Valley Bank collapsed on March 10. The government shut down New York-based Signature Bank the following Sunday and moved to guarantee all deposits at both lenders. The Federal Reserve established additional funds for eligible financial institutions to prevent future runs on similar banks.
While Wall Street appeared largely to ignore the bank turmoil, with stocks gaining in the first quarter and remaining relatively resilient through a rocky earnings season, many investors weren’t convinced banks were out of the woods.
That’s partly because the Fed’s rate-hike campaign, which has fueled tensions in the banking sector, is ongoing. Wall Street expects the central bank to raise rates by a quarter point at its May meeting, and pause and even cut rates later this year. But inflation remains sticky, recession fears are mounting and it remains uncertain whether the Fed will really relax its fight to stabilize prices.
Lawmakers and investors alike sought answers about how the banks collapsed.
Federal regulators published a long-awaited review on the mistakes that led to SVB’s collapse on Friday morning. The Federal Reserve, SVB’s main regulator, said in the report that it “did not fully appreciate the scope of the vulnerabilities as Silicon Valley Bank grew in size and complexity” and “did not take sufficient steps” to ensure that the bank resolved its problems quickly.
“Contagion from the company’s failure posed systemic consequences not contemplated by the Federal Reserve’s accommodation framework,” the Fed report said.
Michael Barr, the Fed’s vice president of supervision, also called on the central bank to reassess its regulatory and supervisory role.
The FDIC released its own review of the Signature Bank collapse on Friday, citing “mismanagement” and a lack of understanding of the risks associated with cryptocurrencies.
