First Republic Bank shares closed Friday with a loss of nearly 33%, despite $30 billion in financial support offered by 11 other major banks over the next 120 days to prevent the regional bank’s collapse.
Investor distrust has continued to deepen following the failure of Silicon Valley Bank. The market is concerned that the capital injection will not be enough to keep First Republic afloat in the coming months.
Moody’s dealt a blow to the bank’s recovery efforts by downgrading its credit rating on Friday. The rating agency believes First Republic Bank’s financial profile has deteriorated and will face greater challenges in the future.
The bleak outlook for medium and small U.S. banks due to the relentless rise in interest rates, the lender’s dependence on external funding to operate, and bank runs, do not provide confidence to the agency.
Both First Republic Bank’s long-term issuer and local currency subordinated ratings were downgraded by Moody’s from Baa1 to B2, Reuters said. Also, the long-term local currency bank deposit rating was downgraded from A1 to Baa3.
Meanwhile, Atlantic Equities downgraded the bank’s rating to neutral, indicating that the bank needed about $ 5 billion in additional capital.
First Republic shares were down 32.8% at the market close on Friday, along with those of other regional banks. PacWest lost 19%, Western Alliance sank another 15%, while US Bancorp fell more than 9%.
“Management is exploring different strategic options which may include a full sale or divestments of parts of the loan portfolio,” commented John Heagerty, according to CNBC. “The limited information provided implies that the balance sheet has increased substantially, which may well necessitate a capital raise,” the analyst added.
For Wedbush analysts, First Republic’s stock price target stands at about $5. They argue that an acquisition could erase nearly all of its stock value.
“A distressed M&A sale could result in minimal, if any, residual value to common equity holders owing to FRC’s significant negative tangible book value after taking into account fair value marks on its loans and securities,” the experts wrote.
According to the New York Times, the bank is reportedly in talks with potential investors to raise capital through the sale of shares to various banks or private equity funds. The newspaper does not rule out that the entire bank could be sold.
The collapse of First Republic Bank has dragged other regional banks down, similar to the SVB collapse that sparked a political debate on financial regulation.