More bank jitters as First Republic probes asset sales, ‘bad bank’ options -source

Are First Republic Bank’s options dwindling? According to a source familiar with the matter, the bank is facing tough decisions after a significant deposit flight during last month’s banking crisis. The creation of a ‘bad bank’ or asset sales are possibilities, but both come with challenges and costs that could be detrimental to shareholders. Christopher Wolfe, head of North American banks at Fitch Ratings, warns that “there’s going to be some big writedowns that would have to be taken against some of the assets given the rate cycle.”

First Republic reported a more than $100 billion plunge in deposits in the quarter, causing shares to slide to a record low, down more than 40%. The bank is now exploring all options to quickly strengthen its position, including an asset sale of up to $100 billion. However, this comes with the risk of significant writedowns and losses.

Despite the challenges, retail investors are taking notice. First Republic was the most ordered stock on Fidelity’s platform on Monday, ending the day at a 12.2% gain. However, about 36% of the bank’s free float of shares were short, according to FIS Astec Analytics.

Deposit flight has been at the center of investor concerns as clients move capital toward money market funds that bring in higher returns or larger ‘too-big-to-fail’ institutions.

As the banking sector continues to face upheaval, analysts expect challenges to extend through the year. First Republic’s reported deposit outflows were much worse than Wall Street estimates and at a “level that could prove very hard to come back from,” according to analysts at Wells Fargo.

It remains to be seen what options First Republic will ultimately pursue, but one thing is clear: the road ahead will be difficult and costly.

(Reporting by Manya Saini in Bengaluru and Lance Tupper and Nupur Anand in New York; Additional reporting by Siddarth S; Editing by Megan Davies, Dhanya Ann Thoppil, Krishna Chandra Eluri, Daniel Wallis and Josie Kao)

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