Tech

Shares of the First Republic drop 40% on news that federalism could step in

Shares of First Republic Bank fell nearly 50% on Friday, putting pressure on the struggling bank and adding to worries about market confidence.

As of noon ET, the stock was trading at $3.72, down 40% from Thursday’s close of $6.19, after falling as low as $3 at one point. point on Friday. Before the Silicon Valley Bank collapse in early March, shares of First Republic Bank were trading at $115, so the current price represents a big drop. It is also trading significantly below the 52-week high of $171.09.

After failure of the tech-friendly Silicon Valley Bank, an open question is whether other banks with related customers will suffer the same fate. While the SVB was busy booming, concerns grew that the First Bank of the Republic might see a similar amount of deposits, leading to its own debacle.

Those worries accelerated this week after the bank its first quarter earnings reportdiscloses the extent to which its deposit base has contracted.

In its earnings report, First Republic shared that it closed last year (pre-crisis numbers) with $176.4 billion in deposits. That number dropped to just $104.5 million by the end of the first quarter. Included in that figure, however, were $30 billion worth of deposits from other banks, which somewhat eased customer capital flight from the financial institution.

Since that report earlier in the week, several things have happened.

Reuters report Friday that officials from the U.S. government are working with industry participants in the hope of “together creating a lifeline for struggling lenders.” Afterward, CNBC reports that optimism for an industry-led lifeline is fading and it is more likely that “the Federal Deposit Insurance Corporation will take it.”

That’s not good for the bank or their customers. While during the time SVB was in the bin, the US government ensured that all its deposits would be secure and accessible, there is still no clear indication that that is the policy. new practice or customers of the First Republic will enjoy the same protections.

If you’re wondering why any bank customer would choose to keep money in the First Republic given the troubled lifeline negotiations, possible government intervention and shady protections for account balances above the quarter million dollar mark, the answer is they probably won’t. In turn, accelerating deposit withdrawals will only make the situation worse, as we saw with SVB.

Not a dead banker, but this goose looks well cooked.



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