First Republic shares close down 33% despite $30bn lifeline

First Republic Bank stock tumbled yet again on Friday after a financial lifeline from large US banks that deposited $30bn into its accounts failed to calm investor fears.

Shares in the San Francisco-based lender closed down 32.8 per cent in the first session after 11 of the largest US banks, spearheaded by JPMorgan Chase, said they would deposit $30bn with the California-based lender in an effort to shore up its finances.

Despite the share sell-off, one person briefed on First Republic’s liabilities by federal officials said that as of noon in New York, deposit outflows on Friday were negligible. “I can say with 99 per cent certainty that the share price is diverging from deposit outflows,” the person said.

First Republic’s stock has fallen more than 75 per cent since worries emerged last week about depositors pulling cash from several midsized US lenders, sparked by the sudden collapse of Silicon Valley Bank.

First Republic said on Thursday that daily deposit outflows had “slowed considerably” but that it was suspending its dividend and had increased borrowing from the Federal Reserve and the Federal Home Loan Bank, seen as the two lenders of last resort to US banks.

First Republic borrowings from the Fed varied from $20bn to $109bn from last Friday to Wednesday at an overnight rate of 4.75 per cent, and since last Thursday the lender has increased short-term borrowings from the FHLB by $10bn at a rate of 5.09 per cent.

“The significance of the changes in FRC’s balance sheet in just one week are staggering, in our view, and along with the suspension of the common stock dividend, paints a very dire outlook for the company and shareholder,” wrote KBW analysts, referring to the bank’s ticker on the New York Stock Exchange.

In a research note on Friday, Wedbush analysts downgraded First Republic’s stock to “neutral” from “outperform” based on the anticipation of higher interest rate costs from borrowing to shore up its liquidity position.

Wedbush also warned that there would be “minimal, if any” residual value to common equity holders if the bank ended up being sold given that the value of its loan and securities would likely need to be marked down in a sale.

“We believe a sale of FRC to [a] larger entity should be beneficial for the banking system as a whole, and should help ease contagion fears,” Wedbush wrote.

“However, given the fair value marks embedded in both its loan and securities portfolios, we find it difficult to come up with a realistic scenario where there’s residual value for FRC common equity holders.”

Shares in other regional US banks also fell on Friday, including a 13 per cent decline for Western Alliance Bancorp, a 7 per cent fall for Comerica, an 8 per cent slide in KeyCorp, and a 6 per cent drop in Zions.

Shares in the largest banks such as JPMorgan and Bank of America, which investors view as being less susceptible to large-scale deposit withdrawals, were also trading lower.

One industry observer said some shareholders may be selling First Republic shares because the big banks would rank ahead of them in the case of a bankruptcy proceeding.