First Republic Bank shares plunged nearly 50% on Friday, adding to the pressure on the troubled bank and adding to its growing market confidence woes.
As of noon ET, the stock was trading at $3.72, down 40% from Thursday’s close of $6.19, after dipping as low as $3 at one point on Friday. Before Silicon Valley Bank collapsed in early March, First Republic Bank shares were trading at $115, so the current price represents a massive drop. It is also trading significantly below its 52-week high of $171.09.
After the Tech-friendly Silicon Valley Bank bankruptcy, an open question was whether other banks with related clients would suffer a similar fate. As SVB was busy imploding, concerns grew that First Republic Bank could see a similar run on deposits, leading to its own bankruptcy.
Those concerns accelerated this week after the bank reported its first quarter earningsrevealing the extent to which its deposit base had shrunk.
In its earnings report, First Republic shared that it closed last year (a pre-crisis figure) with $176.4 billion in deposits. That figure dropped to just $104.5 million at the end of the first quarter. However, $30 billion in deposits from other banks were included in that figure, somewhat mitigating the flight of capital from the financial institution’s customers.
Since that report earlier in the week, several things have happened.
Reuters reported on Friday that US government officials were working with industry participants in the hope of “putting together a lifeline for the troubled lender.” Later, CNBC reported that optimism for an industry-led lifeline was fading, and that it was more likely that the “Federal Deposit Insurance Corporation would take it for bankruptcy.”
That’s not so good for the bank or its customers. While during SVB’s time in the barrel, the US government made sure that all of its depositories were safe and accessible, there is still no clear indication that this is a de facto new policy, or that the First Republic customers will enjoy similar protections.
If you’re wondering why any bank customer would choose to keep money at First Republic given the lifeline talk, potential government intervention, and murky protections for account balances above a quarter of a million dollars, the answer is which probably not. In turn, accelerating the flight of deposits will only worsen the situation, as we saw with SVB.
I don’t want to be a bank disaster, but this goose looks pretty cooked.
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