First Republic Bank stock rallies on report of support from JPMorgan, Morgan Stanley and others
By Steve Gelsi and Ciara Linnane
First Republic Bank's stock rises after losing almost 80% of its value in the past week
First Republic Bank's stock rose Thursday after steep losses earlier in the day, following reports that the nation's largest banks are in talks to provide $25 billion in support for the bank.
The Wall Street Journal reported that Morgan Stanley (MS), JPMorgan Chase (JPM), Citigroup (C), Goldman Sachs Group Inc. (GS), Bank of America Corp. (BAC) and others are considering making deposits of $5 billion each from each bank's own balance sheet to be held by First Republic.
Large regional banks Truist Financial Corp. (TFC), U.S. Bancorp (USB) and PNC Financial Services Group Inc. (PNC) are also taking part in the plan, which continues to be under negotiation, the report said.
Banks would be returning money they drew in from First Republic depositors in recent days, the newspaper reported, citing people familiar with the situation.
Earlier, First Republic stock touched an all-time low amid reports the bank is exploring its strategic options, including a potential sale of the company.
Bank stocks have moved into positive territory after suffering deeper losses earlier in the session.
First Republic's (FRC) stock is rallying 5.2%. First Republic's bonds also moved higher.
Earlier in the day, the stock dropped by about one-third to trade at $30.99 a share, below its former all-time low of $22.48 a share.
The stock is now down about 66% in the past week after the demise of Silicon Valley Bank, Silvergate Bank and Signature Bank in recent days.
Bloomberg reported late Wednesday that the San Francisco-based bank is seeking ways to boost its liquidity and that it would likely draw interest from larger rivals.
A spokesperson for First Republic declined to comment to MarketWatch about a potential sale.
Meanwhile, the sector also mulled the fate of Credit Suisse Group (CSGN.EB), which said it would borrow nearly $54 billion from the Swiss central bank to "pre-emptively strengthen its liquidity."
Also read: Credit Suisse shares jump after bank says it will borrow from Swiss National Bank and buy back debt
First Republic's stock has been vulnerable to bearish sentiment because it serves some of the same clients in the universe of venture-capital and private-equity firms that were served by Silicon Valley Bank (SIVB), which failed last week.
Investors then turned to view First Republic as the next domino likely to fall, and its stock fell sharply.
Adding to the bank's woes, S&P Global Ratings and Fitch Ratings on Wednesday downgraded First Republic's debt into junk-bond territory due to concerns about deposit flight to bigger banks, which are perceived to be safer.
See more: First Republic Bank downgraded to 'junk' by S&P and Fitch on fears further deposit flight will hurt profitability
A JPMorgan analyst said early Thursday that retail traders sold about $88 million worth of First Republic single-stock exchange-traded funds in the past week, accounting for most of the $163 million of financial ETFs that were dumped by those investors. Some $104 million of that total came from regional banks.
First Republic's stock has now fallen 82% over the past 12 months, while the S&P 500 has fallen 10.7%.
On Sunday, First Republic said it had bolstered its financial position through "additional liquidity" from the Federal Reserve and JPMorgan Chase & Co. (JPM), giving it more than $70 billion in unused liquidity.
Banking analyst Richard Bove of Odeon Capital told MarketWatch on Wednesday that the First Republic debt downgrades were "pretty shocking" to the company, because they will increase borrowing costs and raise questions about the health of the business.
But the company's line of credit with JPMorgan Chase and a watchful eye from federal banking regulators will keep the bank healthy, Bove said.
"Is the company in deep trouble? No," Bove said. "I don't think the U.S. government will let it go."
However, the bank does have some weaknesses, such as a large number of investments in mortgage-backed securities with a fixed yield, while its cost of holding deposits is increasing, he said.
Also read: Regional and big bank stocks choppy amid rising fears of banking crisis
-Steve Gelsi
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March 16, 2023 14:55 ET (18:55 GMT)
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