(New York) The American regional bank First Republic plunged again on Wall Street on Friday after a short respite, as rumors of a strategy or a bailout plan multiplied but did not materialize so far.
The stock plunged 48% in mid-session on the New York Stock Exchange after already losing more than 95% of its value from the start of the year. It was going below 4 dollars.
The fate of First Republic has been up in the air since the close failures of three US banks with a similar profile in early March.
The authorities and other financial institutions soon came to its rescue to prevent it from experiencing the same fate as Silicon Valley Bank and Signature Bank, namely bankruptcy.
But First Republic confirmed late Monday that many of its customers withdrew deposits, more than $100 billion in total in the first quarter.
It was able to count on the 30 billion contributed by the other banks, but it is insufficient in the eyes of investors, who plunged the action on Tuesday and Wednesday before giving it a break on Thursday.
Management did outline some measures on Monday evening to strengthen the bank’s financial health and noted as it considered “strategic options,” but did not elaborate.
Intervention of the authorities? Selling the bank as a whole or just some assets? Business as usual on an upcoming interest rate cut? Rumors have since abounded on possible solutions without any official announcement.
For Alexander Yokum, of the CFRA firm, the two most likely scenarios are that the authorities take control of the establishment before reselling the assets at a reduced price or that one or more banks buy back certain assets from First Republic.
But even the latter hypothesis faces significant hurdles as a majority of First Republic’s loans are fixed-rate mortgages, which have therefore lost value with the recent rise in interest rates, explains- he.
The scenario of a straightforward takeover by another bank is, for a similar reason, unlikely in its view: the new owner should immediately factor into its accounts the fact that First Republic’s assets linked to fixed rates such as mortgages or treasury bills have lost value.
Morningstar’s Eric Compton said in a note on Thursday that the bank was almost worthless on the stock market: “At this point, we believe there is a strong likelihood that the bank will not pull through, and even if First Republic survives, we believe that the dilution of existing shareholders necessary to repair the bank’s balance sheet would cause the stock to be worth zero,” he wrote.
The quotation of this one was suspended several times Friday on the NASDAQ for volatility.
