First Republic loses 90% of market value in March – 03/20/2023 – Market

The First Republic Bank action returned to show strong falls this Monday (20), repeating the trend seen in almost the entire month of March. The market evaluates that the help of 11 large American banks, announced last week, may not be enough to save the regional institution.

On Monday, First Republic shares traded in New York fell 47%. Thus, the role accumulates losses of 90% in March. At the end of February, the share was worth US$ 123, and it opened this last third of March at just over US$ 12.

Last week, when the news began to circulate about the bailout of the big banks, the First Republic stock rebounded, reaching almost $40.

But since Friday, the perception of analysts and investors is that the situation may be more serious than it initially seemed.

According to reports in The Wall Street Journal, JPMorgan Chairman Jamie Dimon is leading efforts to find a more definitive exit. Last week, 11 major US banks announced combined deposits of US$ 30 billion to help the Firts Republic, which since the bankruptcy of SVB (Silicon Valley Bank), has suffered with withdrawals by its customers reaching US$ 70 billion.

According to the WSJ, the idea is that the US$ 30 billion deposited become, partially or totally, a direct capital injection in the First Republic. The capital would give the bank a greater breath than a simple deposit, by giving greater confidence to investors, and by making new financial operations viable.

Other alternatives studied, according to the newspaper, are the sale of the bank or an injection of capital by another investor.

The debate over what to do with First Republic comes at a time of growing market distrust of the health of the US and European financial system. In Europe, the sale of Credit Suisse to UBS gave relief to investors, with stock markets closing higher on Monday.

In the United States, stock markets also rose, mainly due to the expectation that the Fed (Federal Reserve, the American central bank) may soften its interest rate policy due to the banking crisis. But some data are worrying.

According to the Bloomberg agency, the entity that provides liquidity to banks that grant real estate credit released US$ 304 billion in the last week alone, almost double the aid of US$ 165 billion offered by the Fed to smaller banks in the country.

The FHLB (Federal Home Loan Bank) was created in the 1930s, during the Great Depression, by the banking system itself. The agency buys bonds from banks that offer financing for those who want to buy or refinance a property.

The increase in debt purchases by the FHLB shows that banks are in high need of funds. According to strategist Joseph Abate, from Barclays bank, the portfolio of bonds purchased by the agency already exceeds US$ 1 trillion, a record since the 2008 crisis.

In just one day, last Monday (13), US$ 112 billion were released, according to Bloomberg, one of the largest daily volumes seen in the history of the FHLB, say sources.

The agency that regulates the FHLB’s activities said it is reviewing all operations carried out by the agency. The original idea was for the system to finance small banks that operate mortgages. But there is information from large banks using this resource, such as Citigroup and Wells Fargo.

For Alan Dias Pimentel, variable income specialist at Blue3 Investimentos, it is increasingly difficult to calm the market in relation to the global financial system.

“Today we had, for example, the news that the Fed, along with other Central Banks, will offer daily liquidity to banks. This reassures at the moment, but also raises concerns about the real situation of the global financial system”, says Pimentel.