First Republic Bank is fighting for survival again after reporting a nearly 41% deposit flight in its first-quarter earnings beat Monday. FRC stock halved during in Tuesday trading and continued pushing new lows Wednesday. Trading was briefly halted multiple times for volatility reasons throughout the trading day. Now, the San Francisco-based outfit is pleading for additional aid from other banks while it tries to shore up its balance sheet.
Bank stocks saw some slight reprieve Thursday as overseas firms broadly posted better-than-expected results.
First Republic: Buy Now Or Pay Later
Heavily-battered First Republic Bank deposits plummeted by $72 billion during the quarter to $104.5 billion as of March 31, even with the $30 billion injection from the biggest banks including JPMorgan Chase.
Deposit outflows stabilized somewhat in April, but dipped to $102.7 billion as of April 21.
First Republic is trying to persuade its previous rescuers to bail it out again with a buy now or pay more later pitch, CNBC reported Wednesday. The bank's advisors are attempting to convince large institutions to buy bonds from First Republic at above-market rates for a few billion in losses, or face $30 billion in FDIC fees if First Republic fails.
If the big banks step up and take the hit, First Republic advisors are confident other parties will help recapitalize itself and already have buyers lined up for new FRC stock in that scenario.
Elsewhere, a source involved in discussions about the bank told Politico that no one is expected to buy First Republic without substantial federal guarantees.
Meanwhile, U.S. regulators are weighing the prospect of downgrading First Republic's CAMELS rating, their private assessment of the bank, which could potentially curb borrowing from the Fed discount window and emergency facility launched last month, Bloomberg reported Wednesday.
However, the FDIC hasn't reached a decision and has given it time to shore up its finances as regulators prefer a private rescue over the government seizing the bank. Authorities don't believe the bank poses a systemic risk, according to people familiar with the matter. The FDIC sent some additional staff to First Republic's headquarters to keep tabs on its health, Bloomberg reported.
Other Strategic Options
FRC stock crashed 49% to 8.10 on Tuesday on First Republic's deposit flight and a Bloomberg report that the California bank is considering selling $50 billion to $100 billion in long-term securities and mortgages as part of its rescue strategy. Many of those securities have a market value that's well below book value. First Republic can't afford to sell those assets at market value.
The company is trying to reduce its asset-liability mismatch and shore up its balance sheet to avoid being seized by the FDIC. First Republic may offer potential buyers warrants or preferred equity as an incentive to purchase the assets above market value, Bloomberg reported, according to people familiar with the matter.
First Republic may also need the government's help negotiating another injection from the largest banks to stabilize it during the attempted turnaround, Bloomberg reported.
In the earnings report, First Republic said it will cut 20%-25% of jobs in Q2 and is exploring strategic alternatives.
FRC Stock Dives, Regional Banks Jitter
First Republic stock rebounded 8.7% Thursday to 6.18.
FRC stock pushed new lows Wednesday, closing down 29.8% at 5.69 following the trading halts. Shares dropped as low as 4.76 intraday.
The SPDR S&P Regional Banking ETF rose another 1.9% Thursday after inching higher Wednesday. It fell 4.2% on Tuesday to the lowest since late 2020 as regional banks retreated. KeyCorp and Zions both fell more than 5% Tuesday. KEY stock rose 3.74% Thursday after edging up Wednesday. ZION stock rose 0.7% to recover half of its Wednesday losses.
PacWest Bancorp retreated 2% Thursday. Shares jumped 7.5% Wednesday after reporting deposits increased to $28.2 billion by March 31 and climbed by another $700 million as of April 24. PacWest reported $27.1 billion in deposits in its March 20 investor update. PACW stock had tumbled nearly 9% Tuesday but leapt as much as 16% premarket Wednesday.
HomeStreet continued to slide Thursday, retreating another 5.7%. The stock fell 2.8% Wednesday after shares unraveled 35% in Tuesday trading.
Foreign banks Deutsche Bank, Barclays and BBVA all rose Thursday after beating quarterly estimates. Barclays shares leapt 7.3% during trading.
Banking technology and software provider Fidelity National Information Services gained 2.7% after cruising by earnings forecasts.
Bitcoin hovered below $29,700 Thursday after briefly rocketing to $30,000 following the First Republic news. The world's largest cryptocurrency traded in its $27,000 range the past week prior to FRC earnings.
Meanwhile, the Federal Reserve and FDIC report updates on Signature Bank and SVB Friday morning.
You can follow Harrison Miller for more stock news and updates on Twitter @IBD_Harrison
