Shares in First Republic Bank shoot up after $30B lifeline

Investor confidence rises on pledge by Fed to help small banks

Treasury Secretary Janet Yellen (Getty)
Treasury Secretary Janet Yellen (Getty)

After a good night’s sleep, investors poured their cash back into First Republic Bank on Tuesday morning, pushing the troubled stock up more than 40 percent from the opening bell.

The San Francisco-based mortgage and commercial real estate lender led a broader rebound on trading in regional banks, a sector which suffered losses after the failure of Silicon Valley and Signature banks earlier this month, Yahoo! Finance reported.

“You’ve got green across the screen in a broader rebound taking place,” Yahoo Finance Live’s Brad Smith said, not long after the opening bell. “Let’s take a look to see if we can find First Republic.

“Oh my goodness: You have the biggest mover on the upside of those regional banks, because it was among the biggest decliners.”

First Republic’s stock rose to $17 a share, more than 40 percent higher for the morning. The stock had fallen 82 percent from $96 on the close of March 9, the day before Santa Clara-based Silicon Valley Bank collapsed.

Since then, First Republic has seesawed to the whims of investors, with confidence rising from the $30 billion in deposits injected into its coffers by a group of private banks led by JPMorgan Chase, as well as comments from Secretary of the Treasury Janet Yellen that the Federal Reserve is ready to help small banks, according to Yahoo Finance.

There were also reports that lawmakers were willing to push up the insurance limit for FDIC deposits past $250,000.

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“It seems that all of that, perhaps, has stopped the selling at First Republic,” according to a Yahoo analyst.

The market uptick in First Republic followed the downgrading of its credit rating on Sunday — its second downgrade in a week. 

Warning that still another cut could follow, S&P Global Ratings downgraded First Republic’s long-term issuer credit rating to B+ from its earlier ranking of BB+.

The drop came despite the deposit infusion from 11 other banks last week, an effort to stabilize and boost confidence in the struggling lender. A rating of B+ is considered “junk” in that it suggests that credit issued by First Republic is not investment grade and runs a higher than average risk of default.

The downgrade came after a week in which First Republic Bank’s common stock fell by 72 percent in the wake of a credit squeeze brought about by the unprecedented rise in interest rates levied on the market by the Federal Reserve Bank in an effort to bring down inflation.

Since the collapse of Silicon Valley Bank, First Republic is seen as the next Bay Area bank at risk of failure due to its reliance on wealthy customers, meaning those with deposits above the FDIC insured rate of $250,000. That cap was increased from $100,000 during the banking crisis of 2008. This is the type of client the bank avoided when it got its foothold in San Francisco in the late 1980s. 

— Dana Bartholomew

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