"Asset Sale SOS to Major Banks" First Republic Bank Stock Plummets Over 30% Again

by Cho Seulkina

Published 27 Apr.2023 04:32(KST)

First Republic Bank, which was caught in the aftermath of the banking crisis triggered by the U.S. Silicon Valley Bank (SVB), continued to see a double-digit drop in its stock price on the 26th (local time). Following a bank run (massive withdrawal of deposits), even the option of asset sales requested from major banks is expected to be difficult, leading to assessments that the bank is facing a bleak survival battle.

In the New York Stock Exchange shortly before the market closed that day, First Republic's stock price was trading around $5.40 per share, down more than 32% from the previous session. During the day, the stock price even plunged to around $4.76 per share. Following a massive 49.4% drop the previous day due to the impact of the Q1 earnings report, the stock has recorded double-digit declines for two consecutive days. Since the bankruptcy of Silicon Valley Bank (SVB) last month, First Republic's stock price has plummeted by a staggering 95% compared to the beginning of the year.

[Image source=Reuters Yonhap News]

In particular, the recent sharp decline is analyzed to be due to heightened investor anxiety after First Republic announced its Q1 earnings. According to the Q1 earnings report released on the 24th, the bank's deposits as of the end of March stood at $104.5 billion (approximately 140 trillion won), down about 41% from the previous quarter. Despite receiving $30 billion in funding support from 11 major banks including JP Morgan immediately after the SVB incident, a clear deposit outflow of over $100 billion was confirmed over three months. This immediately fueled concerns in the banking sector.

The Wall Street Journal (WSJ) reported the atmosphere, stating, "(The funding support from major banks) had a short-term effect. But it did not solve the bigger problem," adding, "The stock market fundamentally views First Republic as having almost no value in its current state." This means that investors, following depositors, have also judged First Republic to be risky. WSJ diagnosed that the scale of First Republic's stock price decline is particularly severe compared to other regional banks at the center of the SVB crisis, such as PacWest Bancorp.

Currently, First Republic is considering selling its held assets. WSJ, citing sources, reported that First Republic recently proposed a new support plan to 11 major banks. The proposal includes additional support by having other banks purchase First Republic's assets such as loans and securities at levels higher than market interest rates. Economic media CNBC reported this fact and stated that in this case, while other banks would inevitably incur losses, First Republic is persuading them by emphasizing that if it allows its own bankruptcy, it may have to pay higher costs due to stricter regulations from authorities.

However, there are also views that this will not be easy. One source told major foreign media, "The possibility of a sale is low," and pointed out, "Unless authorities twist arms or provide incentives, major banks will not bear losses." Another source told The Washington Post (WP), "I do not think a sale is possible." The U.S. authorities, who actively moved to devise measures during the SVB bankruptcy last month, are currently showing no particular movement. CNBC, citing sources, reported that U.S. authorities are currently reluctant to intervene in First Republic.