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First Republic Bank shares plunged on Monday as news of fresh funding failed to ease investor fears of contagion in the banking sector after last week’s collapse of SVB Financial Group.
The US regional lender’s stock was last down 67% at $27.08 before trading was halted due to volatility.
First Republic on Sunday secured additional funding through JPMorgan Chase & Co and the US Federal Reserve, giving it access to a total of $70 billion in funding through various sources.
The bank’s liquidity strengthened overnight, “but the real problem for the industry is that there is a crisis of confidence in the stickiness of deposits and when that breaks down, things can move very quickly,” said Christopher McGratty, head of US Bank Research at investment bank KBW.
Despite the cash infusion, Raymond James twice downgraded the bank’s stock to “market perform”, highlighting the risk of deposit outflows First Republic faces from large depositors panicking on after the bank run at SVB.
While the bank is better positioned for potential deposit outflows than it might have been before the additional funding, if there are net deposit outflows, it will shrink First Republic’s earnings power, Raymond James analyst David Long wrote in a note.
SVB Financial is considering strategic options
US authorities launched emergency measures on Sunday to boost confidence in the banking system after the failure of Silicon Valley Bank threatened to trigger a wider financial crisis.
State regulators also shut down Signature Bank of New York, with regulators guaranteeing deposits at Signature and SVB.
“The market seems to think there will be more stress. The question is at what point do they become complacent,” McGratty said.
The yield on the 2-year Treasury note has fallen the most since the 2008 financial crisis, as investors reduced bets on a rise in interest rates in the wake of a potential crisis in the banking sector.
Traders and analysts noted that the panic could push people to move money from smaller lenders to the perceived safety of big banks.
Among other regional lenders, Western Alliance was down 82.% and PacWest Bancorp slid 52% before trading was halted due to volatility.
The KBW regional banking index plunged 11.40%, underperforming an 8% decline in the S&P 500 banking index.
Among Wall Street lenders, Bank of America Corp fell 6.51%, Citigroup Inc fell 5.42% and Wells Fargo slid 6.93%, while lenders in Asia and Europe also plunged.
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