First Republic shares closed down 33% despite a $30bn lifeline -Dlight News

First Republic shares closed down 33% despite a $30bn lifeline

First Republic Bank’s stock tumbled again on Friday as the financial lifeline of major US banks that had deposited $30bn into its accounts failed to calm investor fears.

Shares of the San Francisco-based lender closed down 32.8 percent in the first session after 11 of the largest US banks, led by JPMorgan Chase, said they would deposit $30 billion with the California-based lender in an effort to shore up its finances. .

Despite the share selloff, deposit outflows were negligible Friday, as of midday in New York, a person on First Republic’s obligations by federal officials said. “I can say with 99 percent certainty that the share price is diverging from deposit outflows,” the person said.

First Republic’s stock has fallen more than 75 percent since last week, when concerns arose that the sudden collapse of the Silicon Valley bank was causing depositors to pull cash from many midsize U.S. lenders.

First Republic said on Thursday that daily deposit outflows had slowed “significantly” but that it was suspending its dividends and increasing borrowing from the Federal Reserve and the Federal Home Loan Bank, the two lenders of last resort to US banks.

First Republic borrowing from the Fed varied from $20bn to $109bn at an overnight rate of 4.75 per cent from last Friday to Wednesday, and since last Thursday the lender has increased short-term borrowing from the FHLB by $10bn at a rate of 5.09. percent

“The significance of the changes to FRC’s balance sheet in just one week is staggering, in our view, and presents a very dire outlook for the company and shareholders, along with the suspension of common stock dividends,” KBW analysts noted. The bank’s ticker on the New York Stock Exchange.

In a research note on Friday, Wedbush analysts downgraded First Republic’s stock from “outperform” to “neutral” on expectations of higher interest rate costs from borrowing to bolster its liquidity position.

Wedbush also warned that there would be “minimal, if any” residual value to common equity holders if the bank were to be sold, as the value of its loans and securities would need to be marked down in the sale.

“We believe the sale of FRC [a] A larger entity should be beneficial to the banking system as a whole, and should help ease contagion fears,” Wedbush wrote.

“However, we find it difficult to come up with a realistic scenario where there is residual value for FRC common equity holders, given the inherent fair value qualities of both its loan and securities portfolios.”

Shares of other regional US banks also fell on Friday, including a 13 percent drop for Western Alliance Bancorp, a 7 percent drop for Comerica, an 8 percent drop for KeyCorp and a 6 percent drop for Zines.

Shares of the biggest banks, such as JPMorgan and Bank of America, which investors see as less vulnerable to large-scale deposit withdrawals, were also trading lower.

An industry watcher said some shareholders may be selling First Republic shares because the big banks will be ahead of them in the event of bankruptcy proceedings.

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