After reports that the bank may need more funds despite a $30 billion 24 bn rescue last week, shares in the troubled First Republic Bank fell more than 46% on Monday.
The credit rating of the regional bank was downgraded by S&P Global as the banking crisis spread into a new week. The bank, which caters to wealthy clients, probably had high liquidity stress with substantial outflows First Republic's woes after the collapse of Silicon Valley Bank SVB and New York-based Signature, according to the agency. Over the weekend, Credit Suisse became the largest institution to have been embroiled in the upheaval when the Swiss government forced the troubled bank into a cut-price takeover by rival UBS.
First Republic has struggled to assure depositors that it will not suffer the same fate as SVB and Signature. The bank increased borrowings from the US Federal Reserve last week and suspended its common stock dividend despite holding $213 bn in assets and $176 bn in deposits.
On Sunday, Reuters reported that the lender was still trying to come up with a deal to raise capital, days after 11 of the biggest names in US banking, including JPMorgan Chase, Citigroup, Bank of America and Goldman Sachs kicked in $30 billion.
The Wall Street Journal reported that Efforts to provide new support to First Republic are being led by JP Morgan CEO Jamie Dimon.
First Republic executive chairman, Jim Herbert, and CEO, Mike Roffler, said that the cash injection is a vote of confidence for First Republic and the entire US banking system. First Republic shares have lost 80% of their value over the past 10 days because of fears of a bank run. Nearly 70% of First Republic's deposits are uninsured, well above a 55% average for medium-sized banks, a figure that puts the bank third after Silicon Valley Bank 94% and Signature Bank 90%, according to Bank of America.
According to the Journal on Friday, First Republic's lending business revolves around making huge mortgages to such clients as Mark Zuckerberg Dependence on property, personal and commercial loans concerns analysts as they can't be quickly liquidated.
Despite the assurances of US banking officials and the US president, Joe Biden, that all deposits in midsize banks are safe regardless of amount, First Republic has seen large outflows to larger institutions. The bank borrowed $109 billion from the Fed to meet withdrawal demands in a single night.
It is widely noted that banks that stepped in to support the bank are also the banks that are going to benefit from wealthy depositors now removing the money.
On Monday, CNBC reported that First Republic had hired an investment bank to advise it on potential options, but a $25 billion hole in its balance sheet remained a hurdle for any deal. The bank's share decline came as other midsize or regional banks have seen their share values rise modestly.