Shares of First Republic Bank extended losses to 32% in afternoon trading Friday after being briefly halted as $30 billion in deposits injected by large U.S. banks failed to quell investor worries about the beleaguered lender.
Concerns about the bank's health prompted top power brokers including U.S. Treasury Secretary Janet Yellen, Federal Reserve Chair Jerome Powell and JPMorgan CEO Jamie Dimon to put together an unprecedented rescue deal on Thursday.
First Republic suspended its dividend and disclosed it has $34 billion in cash excluding the new deposit injection. Analytics firm Ortex calculated short sellers made more than $100 million on the day's share decline.
The lender also said it had borrowed up to $109 billion from the U.S. Federal Reserve and an additional $10 billion from the Federal Home Loan Bank on March 9. But on Friday the deal was increasingly seen as a bridge before an outright sale.
"The significance of the changes in (the company's) balance sheet in just one week are staggering.. and along with the suspension of the common stock dividend, paints a very dire outlook for the company and shareholders," said KBW Managing Director Chris McGratty.
Shares of Wall Street banks including JPMorgan Chase & Co. , Citigroup Inc., Bank of America Corp. and Wells Fargo & Co. involved in the San Francisco-based lender's rescue dropped between 2% and 4%.
Founded in 1985, First Republic had $212 billion in assets and $176.4 billion in deposits as of the end of last year, according to its annual report.
First Republic shares are down more than 80% this month, with the bank caught up in a widening banking crisis triggered by the collapse of two mid-size U.S. lenders over the past week.
"Possibly the market is looking for an all-out sale/buyer rather than an injection of capital," said John Petrides, portfolio manager at Tocqueville Asset Management, adding the situation is not over.
The bank's earnings profile is "clearly impaired" and the "new deposits effectively bridge the estimated $30.5 billion of uninsured deposits still on FRC's balance sheet providing time for FRC to likely explore a sale," Jefferies analysts led by Ken Usdin wrote in a note to clients.
The banks that were part of First Republic's rescue package are its most likely suitors for an acquisition, but the U.S. government is less likely to endorse a purchase by the biggest banks, said a source who declined to be identified because of the sensitivity of the situation.
The rescue package came less than a day after Swiss bank Credit Suisse clinched an emergency central bank loan of up to $54 billion to shore up its liquidity.
Fed data on Thursday showed banks sought a record $152.9 billion in emergency liquidity from the U.S. central bank over recent days, surpassing previous high that was set during the most acute phase of the financial crisis.
The borrowings speak to the "funding and liquidity strains on banks, driven by weakening depositor confidence," Moody's said. The ratings agency had downgraded its outlook on the U.S. banking system to negative earlier this week.
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