Published - March 14, 2023 @ 2:40 PM (EET)
As broader fears over the health of the US financial system following the collapse of Silicon Valley Bank outweighed news that the regional lender secured new financing, shares in First Republic Bank (NYSE:FRC) shed as much as 71% of their value in trading on Monday before trading was halted.
While the Federal Reserve can do its best to restore confidence at banks, the message investors are sending is evident that the emergency measures, which include more accessible loan terms and guaranteeing all depositors' money, may not be enough to protect lenders.
Throughout the day, many bank stocks were repeatedly halted for volatility.
In addition to First Republic's losses, shares of Western Alliance Bancorp (NYSE:WAL) tanked 47%, PacWest Bancorp (NASDAQ:PACW) dropped 21%, KeyCorp (NYSE:KEY) was down 27.4%, and Comerica (NYSE:CMA) traded 27.7% lower.
WHY IT MATTERS
Noting that First Republic has strengths rival Silicon Valley Bank lacked, Wall Street analysts called the reaction overblown.
On Sunday, the San Francisco-based bank secured financing from JPMorgan Chase & Co (NYSE:JPM) that would give skittish investors access to total available, unused liquidity worth more than $70 billion. The liquidity excluded additional funds First Republic is eligible for under the new program unveiled by US regulators over the weekend.
Still, the cash infusion was not sufficient to keep Moody's Investors Service from placing First Republic and five US lenders under review for downgrade. According to Moody, First Republic's share of deposits exceeding the Federal insurance threshold make its funding more sensitive to sudden, large withdrawals.
Meanwhile, founder Jim Herbert and CEO Mike Roffler, in a statement, said,
"First Republic's capital and liquidity positions are very strong, and its capital remains well above the regulatory threshold for well-capitalized banks."
Herbert also told reporters on Monday that the bank was operating as usual and was not seeing a significant depositors exit.
In addition to a 16% decline last week, the SPDR S&P Regional Banking ETF lost 12% on Monday. At the time of writing, shares of First Republic Bank rose 20% to $37.45.
