First Republic shares slump as concerns over banking system remain
By Scott Kanowsky
Investing.com -- Shares in First Republic Bank (NYSE: FRC ) shed nearly a fourth of their value on Friday as analysts warned of financial pains ahead for the regional lender despite a $30 billion deposit from some of the biggest U.S. banks.
JPMorgan Chase (NYSE: JPM ), Citigroup (NYSE: C ), Bank of America (NYSE: BAC ), and Wells Fargo (NYSE: WFC ) each chipped in $5B in uninsured deposits following reported discussions between top banking executives and regulators in Washington. Morgan Stanley (NYSE: MS ) and Goldman Sachs (NYSE: GS ) both kicked in $2.5B, while five other banks also contributed $1B each.
The U.S. Treasury Department, Federal Reserve, Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency all backed the additional deposits, saying in a joint statement that the rescue signals the "resilience of the banking system."
But even with the cash infusion, San Francisco-based First Republic said it would still suspend its dividend and focus on bringing down the size and composition of its balance sheet.
Meanwhile, analysts at Wedbush lowered their rating of First Republic to Neutral from Outperform and slashed their share price target to $5 from $140, flagging that it is "difficult to come up with a realistic scenario where there's residual value for [First Republic] common equity holders."
“We estimate that the combined actions taken on the liability side of the balance sheet over the last week to shore up liquidity could increase interest expense materially, and puts the bank in a very tough position from a profitability standpoint, thus making a sale the best option to avoid receivership, in our view,” the Wedbush analysts wrote.
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