First Republic sank bank stocks as investors pulled $30 billion -Dlight News

First Republic sank bank stocks as investors pulled $30 billion

Despite an unprecedented $30 billion in deposits from 11 US banks on Thursday, shares of First Republic Bank continued its slide on Friday after the bank suspended its dividend and disclosed higher borrowing costs weighing on its valuation. The news weighed on the banking sector as optimism surrounding the move by the big banks quickly faded, with analysts at Wedbush cutting their price target on First Republic to $5, a fraction of where the bank is currently trading. JPMorgan Chase & Co. JPM, -3.65% CEO Jamie Dimon, US Federal Reserve Chairman Jerome Powell and US Treasury Secretary Janet Yellen came up with a joint bank deposit during a phone call on Tuesday, a source familiar with the situation confirmed to MarketWatch. The genesis of the deal was reported by the Wall Street Journal and other publications on Thursday. The move was described as an “extraordinary effort to stem financial contagion,” as the New York Times reported. Analysts at JP Morgan said the bank’s move to help a smaller rival was positive. “However, news of a post-market drop in First Republic’s share price is likely to rattle late-night investors as markets remain fragile,” they wrote early Friday. JPMorgan Chase JPM, -3.65% was down 2.8% on Friday, Citigroup C, -3.78% was down 3.1%, Bank of America BAC, -4.21% was down 3.1% and Wells Fargo WFC, -4.22% was down 3.5% on Friday. Morning Goldman Sachs GS, -3.43% and Morgan Stanley MS, -3.03% , which are each providing $2.5 billion in a package of deposits for First Republic, were down 2.3% and 1.7%, respectively. Bank of New York Mellon BK, -4.25% and State Street STT, -4.38% were down 3.3% and 2.8%, respectively, while Trust TFC, -5.94% was down 4.6% and US Bancorp USB, -7.47% was down 5%. Those four are providing $1 billion each. PNC Financial Services PNC, -5.53% was down 4.7%. Bill Ackman, chief of Pershing Square Capital, said the $30 billion injection by the bank spread its default risk to the largest US banks and the move amounted to “bad policy”. Structurally important banks would never have made these low-return investments in deposits unless they were forced to do so and without the assurance that FRB deposits would be backstopped if it failed,” Aikman wrote in a tweet late Thursday. Overall, the US Fed Banks borrowed $165 billion from the Fed in the past week after the failure of the Silicon Valley bank, according to data released by the Reserve on Thursday. Moody’s reiterated its negative credit outlook on US banks, saying the $153 billion borrowed from the Fed’s discount window last week was higher than the previous week. The week was $5 billion, the largest amount of Federal Reserve discount window borrowing on record. “Data suggests ongoing, negative credit strain on bank funds,” Moody’s said. First Republic’s stock FRC, -25.47% fell 20% on Friday as Wall Street weighed the influx of deposits against announcements from the company about borrowing to address withdrawals in recent days. Dividend was also suspended. First Republic reported $34 billion in cash as of Wednesday, not including an additional $30 billion in uninsured deposits from 11 banks. The bank also disclosed the amount of interest paid on loans to cover deposit withdrawals in recent days as fears of contagion rocked bank stocks after the demise of Silicon Valley Bank, Signature Bank and Silvergate Bank in the past week. First Republic was often considered the next domino to fall because it served many wealthy clients from the venture-capital and banking circles around Silicon Valley. First Republic said after the closing bell Thursday that it borrowed between $20 billion and $109 billion from the Federal Reserve between March 10 and March 15 at an overnight rate of 4.75%. It also increased short-term borrowing from the Federal Home Loan Bank. $10 billion at 5.09%. Wall Street analysts were split on the impact of the $30 billion deposit outflow from 11 banks. Wedbush cut its price target on First Republic to $5 per share and downgraded the stock, while JPMorgan Chase selected it as a top pick and set a price target of $62 per share. Wedbush cut its rating on First Republic Bank stock to neutral from outperform and cut its price target to about a fraction of its current level of $29. While the $30 billion investment by 11 banks is a plus, the bank has also increased liabilities to boost its liquidity, analysts said. This in turn would “materially increase interest costs, and put the bank in a very difficult position from a profitability point of view,” Wedbush analysts said. Selling the bank is the best option to avoid bankruptcy, they said. “Sale of”. [First Republic] For the larger entity should be beneficial to the entire banking system, and should help ease contagion fears,” the analysts said. “However, given the fair value qualities embedded in its loan and securities portfolio, we find it difficult to come up with a realistic scenario where the remaining have values. [First Republic] common equity holders.” JPMorgan Chase analyst Steven Alexopoulos said, “We’ve covered the banking sector for more than two decades and we’ve never seen the industry before to help protect a peer in need,” said JPMorgan Chase analyst Steven Alexopoulos, though he said the bank faces questions from investors. Whether it will. A $30 billion incremental deposit is enough and how changes to its balance sheet will affect the company’s earnings power is also enough. The stock is currently below total book value and “burn-down” for unrealized losses on its held-to-maturity assets. Total is trading below book value, he said. First Republic is a “high risk but potentially very high reward name,” he said. Meanwhile, SVB Financial Group SIVB said on Friday that it had filed for Chapter 11 bankruptcy in New York. has applied for and will seek a court-supervised restructuring. The filing does not include SVB Capital or SVB Securities Funds and general partner units, which SVB Financial in its view Continues to work as he explores positive options. SVB Financial is no longer affiliated with Silicon Valley Bank, which was placed into receivership by the FDIC last week after a run on its deposits. Also Read:’‘High volume of startups’ could fall by year-end following Silicon Valley bank failure, says Morgan Stanley

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