First Republic Bank remained imperiled on Monday as last week’s $30 billion cash infusion by some of the nation’s biggest banks and a frantic effort to sell a stake in the bank to raise additional cash did little to calm investors and depositors.
Instead, the regional lender was teetering. Trading in its shares on the New York Stock Exchange was automatically halted several times to prevent a free fall, and the stock was down 46 percent in the early afternoon.
First Republic, a midsize bank based in San Francisco, had lost roughly $70 billion in deposits in recent weeks, said two people with knowledge of the matter — nearly half of its total depositor base as of the end of last year. The attempt to sell a piece of the bank had quickly morphed into a save-the-bank situation, said two other people with knowledge of the matter.
The bank has been in a slide since the failure of Silicon Valley Bank less than two weeks ago.
“First Republic Bank is well positioned to manage short-term deposit activity,” the bank said in an emailed statement on Monday morning. “This support reflects confidence in First Republic and its ability to continue to provide unwavering exceptional service to its clients and communities.”
Shares of First Republic have been in free fall — last week alone, the lender lost about 70 percent of its market value. On Monday, First Republic plummeted again, even as the shares of other banks that were pummeled in the financial panic of last week appeared to stabilize to a degree.
The spiraling problems of First Republic and other banks illustrate how the rush by government officials and the private sector to find swift solutions, meant to restore confidence in the health of the financial system, may have instead exacerbated the financial panic.
Hundreds of other small and midsize banks have borrowed from the Federal Reserve’s discount window — the central bank reported more than $150 billion in borrowing last week, a record amount. Private equity firms have been invited to take a look at troubled bank assets and pick off parts they might find attractive. Executives of big banks are in constant touch with government officials, monitoring the health of smaller banks.
The mix of short-term fixes like loans, efforts to find buyers and reassuring statements by bank executives and government officials have done little to bolster confidence in First Republic. If anything, despite the enormous sums of money involved, the interventions amounted to applying Band-Aids on a wound that might need surgery.
Multiple recent downgrades of banks, including First Republic, by ratings agencies like Moody’s have engendered fear among investors and depositors. The daily headlines about trouble befalling one bank or another continue to foment uncertainty around the industry at large. The plethora of troubles that felled Credit Suisse last week and ended in a $3 billion takeover of the Swiss bank by its bigger rival UBS on Sunday added an extra dark cloud.
And news reports that the Biden administration was in talks with Warren Buffett, the chairman of Berkshire Hathaway who famously swooped in with billions to bolster Goldman Sachs during the nadir of the 2008 financial crisis, only signaled that the current panic might grow worse still.
First Republic is fast becoming the poster child of those contradictions; the extraordinary efforts to save the lender appear to be worrying the markets more, not less.
On Thursday, 11 of country’s largest banks gave First Republic, the nation’s 14th largest bank, a $30 billion short-term loan to shore up its finances as depositors left en masse. The act was meant as a show of support for First Republic, because the amounts the banks — including JPMorgan Chase, Bank of America, Citigroup and Wells Fargo — lent were uninsured. In other words, the big banks stood to lose their money if First Republic failed, unless the government agreed to pay them back.
First Republic had also been searching for a private equity firm or another buyer to purchase a stake.
One potential buyer, a major bank, conducted deep research into First Republic’s accounts and dropped out, a person familiar with the negotiations said.
First Republic has also seen several downgrades of its credit in recent days. On Friday, Moody’s said it was downgrading the bank because of its increased reliance on short-term borrowing, including from the Federal Reserve and the consortium of banks. Repaying interest on loans can be expensive for a bank that is trying to shore up its cash.
“Moody’s believes the high cost of these borrowings, combined with the high proportion of fixed rate assets at the bank, is likely to have a large negative impact on First Republic’s core profitability in coming quarters,” the agency said in a note. Moody’s also said that it was unclear how First Republic would find a way back to being profitable again.
Standard & Poor’s, in its own downgrade Sunday, said the bank continued to face “substantial business, liquidity, funding, and profitability challenges.”
If none of those dynamics has surprised season bank veterans, the speed of the fall of some banks has shocked them. As the JPMorgan Chase chief executive, Jamie Dimon, was rallying support from other bank chieftains for last week’s bailout, some leaders of other banks told him they doubted it would work, three people briefed on those discussions said.
Mr. Dimon’s response, in so many words: They had to at least try. His bank is now among those advising First Republic on how to stay alive.
Because First Republic caters disproportionately to wealthy clients — its branches are clustered mostly in California, Boston and New York — the entirety of their deposits will not automatically be insured by the Federal Deposit Insurance Corporation, which promises to make customers of failed banks whole up to $250,000. When SVB and Signature collapsed, the government made an exception and said all customers of the two banks would be made whole.
If the government came to the same arrangement with First Republic, it would not just be bailing out the usual mix of individual depositors and small businesses, but some of the biggest names in the financial world.
