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Thursday, July 25, 2024

First Republic Shares Plunge After-Hours As Restructuring Plans Fizzle

Courtesy of ZeroHedge

At one point today, First Republic Bank (FRC) shares were up over 50% (based on the narrative that Yellen said the Biden admin was prepared to offer more support to banks).

That is no longer the case as most of those gains have been erased following a number of reports late in the day on the state of the bank’s restructuring efforts, as no buyer has emerged.

While investors have reportedly expressed interest in helping, the firm’s unrealized losses have been a sticking point, and The Wall Street Journal reports that FRC is adding Lazard and McKinsey to help review strategic options alongside JPMorgan, which had already been hired to advise on moves the bank could make to regain its footing.

The addition of Lazard and McKinsey underscores what a complicated situation First Republic is in – one that defies an easy fix.

Finding a willing buyer for the bank, whose customers had withdrawn some $70 billion since Silicon Valley Bank’s collapse (and has been downgraded deeper into junk), selling stock at these depressed levels and other alternatives all face their own substantial hurdles.

Additionally, Bloomberg reports that US officials are exploring the possibility of government backing to encourage a deal that would shore up the lender, people with knowledge of the situation said.

Among options being discussed, the government could play a role in lifting assets out of First Republic that have eroded its balance sheet.

Additional ideas have included offering liability protection, applying capital rules more flexibly or easing limits on ownership stakes, the people said.

Finally, we note that the bank itself issued a statement to its clients late in the day:

To Our Valued Clients,

The events of the past two weeks have been unprecedented, and we want to take a moment to provide an update.

Our commitment to client service is unchanged, and we remain well-positioned to continue to manage deposit activity. Today, as every day, we are processing transactions, opening accounts, funding loans, answering questions, and serving clients’ overall banking and wealth management needs.

We are grateful for your ongoing advocacy for the value of our relationship-based, exceptional service. We keep hearing from you, and the overwhelming theme is this: “We love our bank.” We want to extend our sincerest thanks for your continued and unwavering support.

If you have any questions, please don’t hesitate to reach out to your banker or wealth manager.

“processing transactions” and “opening accounts”?

As S&P Global warned on Sunday, last week’s deposit infusion may not be enough to overcome the bank’s “substantial business, liquidity, funding, and profitability challenges.”

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