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First Republic Bank plunges 30% on report that it’s evaluating strategic alternatives including a potential sale

nyse svb first republic trading floor

Timothy A. Clary/AFP via Getty Images

  • First Republic Bank plunged 30% on Thursday following a report that it was considering a sale.
  • The bank has been roiled by the collapse of its regional banking peer, Silicon Valley Bank.
  • Almost 70% of First Republic’s deposits have no FDIC insurance and the bank has $4 billion in unrealized bond losses.

The volatility in regional banks is not over, one week after the fallout from Silicon Valley Bank’s implosion, with shares of First Republic Bank plunging 30% on Thursday as the company reportedly considers a sale.

First Republic Bank has many similarities to Silicon Valley Bank, including the fact that nearly 70% of First Republic Bank’s deposit base doesn’t have FDIC insurance. That makes the bank more susceptible to a run on its deposits, even when considering the Fed’s emergency liquidity measures.

First Republic Bank is also sitting on $4 billion in unrealized losses on its held-to-maturity bond portfolio, which is what sparked the initial downfall for Silicon Valley Bank last week.

Additionally, the bank is at heightened risk to see significant deposit outflows as customers shift their money to larger banks like Bank of America and JPMorgan. S&P Global Ratings and Fitch Ratings downgraded the company’s credit status to “junk” on Wednesday, citing the risk of potential deposit outflows.

While emergency measures over the weekend from the Federal Reserve and US Treasury, as well as a lending agreement with JPMorgan, helped shore up liquidity for First Republic, it might not be enough as confidence in the bank falters.

According to a Bloomberg report, it is exploring strategic options to shore up liquidity, and that could include a sale to larger rivals.

To be sure, First Republic has plenty of liquidity, with the company saying over the weekend that it had more than $70 billion in unused liquidity thanks to the agreements with the Fed and JPMorgan. 

“The additional borrowing capacity from the Federal Reserve, continued access to funding through the Federal Home Loan Bank, and ability to access additional financing through JPMorgan Chase & Co. increases, diversifies, and further strengthens First Republic’s existing liquidity profile,” the bank said on Sunday.

Read the original article on Business Insider
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