American bank First Republic was still falling on the stock market on Monday, despite rescue efforts by the authorities and rival institutions, according to the WSJ, quoted by AFP.
First Republic BankPhoto: Jakub Porzycki / Zuma Press / Profimedia
A bank in turmoil
First Republic, founded in 1985, is headquartered in San Francisco and has branches primarily in California and urban areas on the East Coast. At the end of 2022 it was the 14th largest US bank by assets.
According to S&P Global Ratings, 68% of the money deposited in the bank is in accounts with more than $250,000, the maximum amount usually guaranteed by the authorities.
After three US banks failed in quick succession, investors and analysts feared that customers would panic and withdraw their money en masse.
This was implicitly confirmed by First Republic on Thursday, when it said it borrowed tens of billions from the US central bank (Fed) every day between March 10 and 15 at fairly high rates.
According to the Wall Street Journal, a total of $70 billion has been withdrawn in recent days, or regarding 40% of what the bank had at the end of 2022.
“Between deposits for which the bank will likely have to pay more interest and rising lending rates, its profitability is set to contract,” notes CFRA’s Alexander Yokum.
An insufficient save?
Faced with a free-falling stock price, the bank tried to reassure the market by announcing on March 12 that it had $70 billion in cash, thanks to the Fed and JPMorgan Chase.
As the stock market crash continued, eleven major US banks pledged on Thursday to deposit a total of $30 billion into its accounts. This is a sign of trust, as these deposits are not insured and can therefore lose their stake.
S&P, which had already placed the bank in speculative grade, downgraded it once more on Sunday, saying the hand out by its competitors “may not” solve its long-term problems.
First Republic said on Sunday that with the 30 billion and its own reserves, it is “well placed to deal” with short-term withdrawals.
But “if you’re a customer of the bank and you see that its rating has been downgraded twice in a few days, you might not want to keep your money there,” said Alexander Yokum.
