The China Mail - First Republic bank in limbo as shares fall further

After dropping more than 50 percent earlier on Friday, shares of First Republic finished the day at $3.51, down 43 percent following numerous trading halts due to volatility.

Now worth only about $654 million, the bank has had a stunning loss of value since its peak days in November 2021 when it had market capitalization of more than $40 billion.

The latest free fall follows First Republic's disclosure on Monday that it lost more than $100 billion in deposits in the first quarter.

The bank also said Monday that its deposit situation had stabilized following a $30 billion infusion of funds announced in mid-March from a consortium of 11 US private banks and that it was "pursuing strategic options."

Since then, various news reports have focused on potential rescue packages involving other banks. But so far nothing concrete has materialized.

First Republic quickly moved into focus on Wall Street's list of worries after the early March failures of Silicon Valley Bank and Signature Bank sparked fear of contagion.

A Federal Reserve review of the SVB collapse on Friday called for tighter supervision of banks.

While the recent batch of earnings reports from mid-sized US banks pointed to a weakening profit outlook in anticipation of tougher rules, market watchers viewed the reports as broadly reassuring.

CFRA Research analyst Alexander Yokum considers the most likely scenarios involve a sale of First Republic following a receivership by the Federal Deposit Insurance Corporation (FDIC), or the sale of its assets to other financial players.

But a problem for either scenario would be the negative value of First Republic's loans, which would result in a loss in value for a prospective buyer.

"Maybe the government will come up with some interesting way to make it enticing," Yokum said.

- More from Washington? -

But exactly how far the government is willing to go this time remains unclear.

Normally, the federal government only guarantees depositors with less than $250,000.

But with its emergency actions in March, the FDIC and Federal Reserve decided to guarantee deposits above $250,000 in an effort to avert further panic among depositors at other banks.

But with that move, the government "ill-advisedly created an expectation that for any future bank failures, uninsured deposit would be protected," said former FDIC Chair Sheila Blair.

But if such an action isn't taken this time, "I do worry that that's going to surprise people and could be disruptive," Blair said.

In a note Thursday, Morningstar analyst Eric Compton said First Republic's prospects have diminished even since Monday, with the latest disclosures spurring more deposit flight.

"At this point, we feel that there is a material probability that the bank does not make it, and even if First Republic does survive, we think that the dilution of existing shareholders that would be required to resize the balance sheet would get current shareholders close to $0 as well," Compton said.

Y.Parker--ThChM