First Republic shares recover slightly as investors hope for a rescue deal
First Republic shares recovered slightly on Thursday as investors hoped the bank would be rescued from collapse.
Shares in the San Francisco-based lender were trading 11 per cent higher on Thursday, although as yet there are no signs of a rescue package.
Bloomberg Intelligence’s Herman Chan suggested the rebound resulted from “short-covering” as “there hasn’t been anything on the news front that would indicate an improvement in fundamentals.” Short-covering is when investors buy back shares to close out an open short position.
Reports suggest regulators are refraining from any intervention as they would prefer a private sector solution.
First Republic – which was the 14th largest US bank at the end of 2022 – is allegedly trying to convince larger rivals to step in and buy more of its assets.
Like Silicon Valley Bank, many of First Republic’s assets have been pummelled by rising interest rates, meaning a sale at market price would crystallise large losses.
According to one proposal, large banks would buy First Republic’s assets at above-market rates. While this would force the banks to take on losses, it would likely be cheaper than fees that would result if the Federal Deposit Insurance Corporation backstopped all the deposits.
Earlier in March, a group of six banks including JP Morgan and Wells Fargo parked $30bn in the bank in an attempt to secure its survival.
“First Republic Bank recovered slightly amid hopes it may be able to crawl back from the precipice with the hope that white knight lenders might stump up more funding,” Hargreaves Lansdown’s Susannah Streeter said.
Its shares are trading down over 60 per cent since its results on Monday evening, when it revealed it had seen more than $100bn in deposit outflows in the first quarter.
Following the outflows, investors are concerned that the huge amounts of expensive short-term funding the bank took on to secure its survival will weigh significantly on profitability going forward.
Over the year to date, its share price is down over 95 per cent.
First Republic has been hit extremely hard since the collapse of Silicon Valley Bank due to its combination of uninsured deposits and a large portfolio of illiquid low-yielding assets.
The wider KBW regional bank index was trading 1.2 per cent higher.