Shares In First Republic Bank Plummet Even After Rescue Deal From Big Banks

First Republic Bank shares plunged 26% Friday morning, despite a rescue agreement backed by large financial institutions.

JPMorgan Chase and Bank of America offered $5 billion of liquidity each to First Republic Bank. First Republic Bank is heavily involved with wealth management and has many customers whose deposits exceed the $250,000 threshold. Truist Financial, BNY Mellon and Bank of America contributed to the $30 billion total.

Janet Yellen, Treasury Secretary, Federal Reserve Chair Jerome Powell and FDIC Chairman Martin Gruenberg. Acting Comptroller for the Currency Michael Hsu stated in a statement that they are pleased with the results. “show of support” It is “most welcome” “demonstrates the resilience of the banking system.”

First Republic Bank shares, which were above $147 at the end of last month, fell below $26 on Friday morning. This indicates an 83% drop. The company’s dividend would be suspended by the executives on Thursday.

Atlantic Equities analyst John Heagerty lowered First Republic Bank’s rating and stated that the bank might need additional capital of $5 billion. “Management is exploring different strategic options which may include a full sale or divestments of parts of the loan portfolio,” According to CNBC’s report, Heagerty said so. “The limited information provided implies that the balance sheet has increased substantially, which may well necessitate a capital raise.”

Wedbush Securities downgraded the company as well and stated that a distressed acquisition could occur. “result in minimal, if any, residual value to common equity holders,” According to The Wall Street Journal. Analysts still believe that First Republic Bank should be sold to a larger institution. “should be beneficial for the banking system as a whole, and should help ease contagion fears.”

First Republic Bank shares had dropped 73% between March 8th and March 13th, the same time frame over which Signature Bank and Silicon Valley Bank were closed by the FDIC. Depositors scrambled to withdraw their funds. The deposit assistance discussions had led to prices for First Republic Bank rising by more than 10% Thursday.

First Republic Bank holds $271 billion in assets. This amount is comparable to Silicon Valley Bank’s $212 billion and Signature Bank’s $110 billion. JPMorgan Chase and Bank of America, Citigroup and Wells Fargo have $3.7 trillion, $3.1 trillion and $2.4 trillion respectively. This phenomenon is noted by people who believe that consolidation could be induced by the collapse of smaller banks.

The vast majority of Silicon Valley Bank deposits, which provided services to almost half of the venture-backed tech and healthcare companies in the United States, was higher than the $250,000 threshold usually insured by FDIC. Silicon Valley Bank had all its deposits insured by regulators so that bank runs could not occur.

Yellen stated on Thursday however that large banks could still be impacted by financial regulators. “create systemic risk and significant financial and economic consequences” When deciding whether to cover deposits beyond the insurance threshold.

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