First Republic shares plunge as $30bn bailout package fails to assuage concerns about troubled bank

First Republic Bank shares fell nearly 20 percent at the opening bell on Friday, as $30 billion in deposits injected by big US banks failed to assuage investor concerns about the troubled lender.

Fears of an imminent collapse of the San Francisco-based bank prompted Thursday’s bailout deal, crafted by top power brokers including US Treasury Secretary Janet Yellen, the Federal Reserve chair, Jerome Powell, and JPMorgan Chase CEO Jamie Dimon.

But despite the huge infusion of private capital, markets still seemed concerned that First Republic could be swept up in a deepening banking crisis and forced to look for a buyer. Wall Street’s main indices opened lower on Friday.

Across the Atlantic, Credit Suisse shares also fell as much as 12 percent on the Swiss stock market as a $54 billion lifeline from Switzerland’s central bank failed to allay investor concerns about the global banking giant. .

Meanwhile, SVB Financial Group filed for Chapter 11 bankruptcy protection to seek buyers for its assets, days after US regulators seized the company’s former unit, Silicon Valley Bank.

Shares of the big four trillion-dollar US banks fell between 2.4 and 2.9 percent in early trading on Friday.

Other midsize US banks, including Western Alliance Bancorp and PacWest Bancorp, saw their shares fall more than 11 percent, in a worrying sign that markets fear the First Republic’s bailout plan will fail to contain the crisis. banking.

The rescue plan for First Republic announced Thursday represented an unprecedented show of support for the troubled regional bank from nearly a dozen of the world’s largest financial institutions.

Rather than a government bailout or private buyout, the deal involved 11 major banks placing a total of $30 billion as uninsured deposits with First Republic, providing a cash injection to help the bank meet the demands of the clients.

As part of the plan, First Republic suspended its dividend and said its Federal Reserve loan went from $20 billion to $109 billion between March 10 and 15.

It also disclosed that it had a cash position of about $34 billion, excluding $30 billion in new deposits from major US banks.

“While the new deposits at First Republic have calmed the waters at the troubled bank, they come at current market rates, which will compress net interest income,” Art Hogan, chief market strategist at B. Riley Wealth, told Reuters. Management.

“With a deteriorating earnings profile, the bank may still have to explore a sale.”

First Republic Bank shares fell more than 20 percent in premarket trading on Friday as $30 billion in deposits injected by big US banks failed to assuage investor concerns.

Credit Suisse shares also fell as much as 12 percent on the Swiss SIX exchange.

First Republic was caught in a deepening banking crisis sparked by the collapse of two other midsize US lenders over the past week.

The rescue package came less than a day after Swiss bank Credit Suisse obtained an emergency loan from the central bank of up to $54 billion to bolster its liquidity.

The new Fed data also showed the struggle for liquidity at US banks over the past week, as discount window lending rose to $153bn on Wednesday, up from $5bn for the week. former.

It was the largest number of loans on record from the Fed’s discount window, which offers banks 90-day loans at the central bank’s policy rate, currently pegged at 4.75 percent after a year of sharp increases.

“The data indicates continued negative credit stress on bank funding, in line with Moody’s negative outlook on the US banking system,” Moody’s analysts wrote in a note.

“The sharp rise in banks’ emergency lending from the Fed’s discount window speaks to funding and liquidity strains at banks, driven by weakening depositor confidence,” the note added.

A standalone Federal Reserve emergency program, the Bank Term Financing Program, saw lower demand, with banks borrowing just $11.9 billion despite more attractive one-year terms.

Customers line up outside a Silicon Valley Bank branch in Massachusetts on Monday. The bank was seized by regulators last week, and its parent company filed for bankruptcy on Friday.

Regulators shut down Silicon Valley Bank last Friday, making it the biggest bank failure in the US since the collapse of Washington Mutual during the height of the 2008 financial crisis.

The bank, which catered to tech startups, was forced to sell a large number of Treasury bonds and mortgage-backed securities to Goldman Sachs at a loss of $1.8 billion to cover a growing deposit outflow.

To plug that hole, he tried to raise $2.25 billion in a sale of new shares, but the news alarmed customers, who rushed to withdraw deposits from the bank, causing outflows of $42 billion in a single day.

Silicon Valley Bank’s assets were seized by the FDIC, and today SVB Financial Group launched bankruptcy proceedings, saying it has about $2.2 billion of liquidity.

It had $209 billion in assets at the end of last year.