US bank First Republic kept rolling on Wall Street on Monday despite life preservers thrown by authorities and competing establishments. The establishment, which plummeted 37%, was penalized by a downgrade of its credit rating by several notches by S&P Global Ratings, according to Marketwatch.
A bank in crisis
First Republic, founded in 1985, is headquartered in San Francisco with agencies located primarily in California and urban areas on the East Coast. As of the end of 2022, it was the 14th largest US bank by asset size. According to the agency S&P Global Ratings, 68% of the money stored in the establishment is in accounts with more than 250,000 dollars, the maximum amount that the authorities usually guarantee.
After the near bankruptcies of three banks in the United States, investors and analysts feared that customers would freak out and withdraw their money en masse. Which the First Republic implicitly confirmed on Thursday by indicating that it borrowed tens of billions from the US central bank (Fed) every day between March 10 and 15, at fairly high rates.
According Wall Street JournalIn total, 70,000 million dollars have been withdrawn in recent days, or around 40% of what the bank registered at the end of 2022. “Between the deposits that the bank will probably have to remunerate more and the passive rates that are rising, their profitability is bound to decline,” says CFRA’s Alexander Yokum.
Insufficient bailout?
Faced with the collapse of the stock, the bank sought to reassure announcing on March 12 that it had, thanks to the Fed and JPMorgan Chase, 70,000 million dollars in cash. As the slide in the stock market continues, eleven major US banks pledged on Thursday to put a total of $30 billion in deposits into their accounts. Trust signal according to them since these deposits are not insured, so they can lose their bet.
S&P, which had already placed the bank in the speculative investment category, further downgraded its rating on Sunday, saying the outstretched hand of its competitors “could not” solve its long-term problems. First Republic said on Sunday that thanks to the $30 billion and its own reserves, it was “well positioned to manage” short-term withdrawals. But “if you are a bank customer and you see that your note is lowered twice in a few days, you don’t necessarily want to keep your money there,” Alexander Yokum advances.
an uncertain future
Despite the interventions of the authorities and the most important representatives of the banking sector, investors still made the Wall Street action fall on Monday, which has already lost 80% of its value in eight sessions. Already significant at the open, the stock’s decline accelerated mid-session: it fell 35% around 4:45pm GMT despite other bank stocks being fairly green.
According Wall Street Journal, the heads of the big banks, led by JPMorgan CEO Jamie Dimon, are currently looking for a way to stabilize First Republic. One of the hypotheses being considered is to convert all or part of the 30,000 million deposits made on Thursday into capital, which would mean a dilution of existing shares. A sale or a new capital injection are also options on the table, reports the newspaper.
Source: BFM TV
