Status: 03/21/2023 08:27 a.m
Despite a large-scale rescue operation, the situation at the US regional bank First Republic remains critical. The share has fallen dramatically again, investors are betting on a further fall in price.
As global financial markets begin to ease somewhat, the struggling US regional bank First Republic continues to worry investors and regulators alike. Despite a concerted aid campaign by the largest financial institutions in the United States, the market’s distrust of the First Republic remains high.
Stock falls 50 percent
A look at the share price shows how critical the institute is. At the beginning of the week, shares in the First Republic fell by up to 50 percent to a record low of $11.52; Trading had to be interrupted several times due to the large price swings. In the end there was a minus of 47 percent.
First Republic Bank is facing a massive loss of confidence. Investors are apparently assuming that the institute could need another cash injection and are betting on a further fall in the share price.
Credit watchers lower the thumb
This was preceded by a further downgrade of First Republic’s credit rating by the rating agency Standard & Poor’s. In the opinion of the credit watchdog, the latest cash injection reduces the acute liquidity pressure, but it may not solve the bank’s “significant” problems.
The hoped-for liberation did not materialize. On Thursday, eleven major US banks – including industry leaders JPMorgan Chase, Bank of America, Citigroup and Goldman Sachs – tried to prop up the faltering regional bank with uninsured deposits totaling $30 billion. The concerted action was carried out in close coordination with the Ministry of Finance and the central bank.
Do JPMorgan & Co. have to step up?
According to a newspaper report, major US banks are already considering new aid for the ailing regional bank. Led by JPMorgan boss Jamie Dimon, the big banks are talking about possible support measures for the smaller San Francisco-based bank, the Wall Street Journal reported.
Consideration is being given to converting bank deposits of 30 billion dollars in whole or in part into capital in order to help the troubled financial institution get back on its feet. JPMorgan and First Republic declined to comment.
Investors are withdrawing deposits from regional banks
The financial markets may have calmed down somewhat in general – but the situation at individual institutes remains critical. The focus is primarily on the regional banks in the USA. In contrast to the big banks, these are subject to far more lax capital regulations.
In addition, there are disproportionately large amounts above the statutory insurance limit of $250,000 in the accounts of some smaller regional financial institutions. The FDIC deposit insurance does not actually have to intervene here. In recent days, investors have therefore started en masse to shift their deposits from smaller institutions to big banks. According to the Wall Street Journal, around $70 billion was withdrawn from First Republic in just a few days – about 40 percent of the bank’s total deposits.