the bank First Republic averted potential bankruptcy after a group of some of the largest financial firms agreed to deposit a combined $30 billion in the bank. However, the cash injection is only a short-term solution and investors are not satisfied.
The San Francisco-based company will still have to move quickly to find a way to remain independent or reach an acquisition deal. The deal with the 11 banks, including Bank of America Corp., JPMorgan Chase & Co., Citigroup Inc. and Wells Fargo & Co., includes deposits with an initial term of 120 days.
“The market may be interpreting that the $30bn in new deposits coming in may have prevented a run on depositors, but they haven’t added any new capital to the bank”said Arthur Wilmarth, a professor emeritus at George Washington University Law School, in an interview. “Shareholders know that they are certainly at risk.”
Added to market suspicions is the fact that First Republic drew on a Federal Reserve liquidity facility of up to $109 billion in the days before it was bailed out by the big banks, it said arnold kakuda, Bloomberg Intelligence banking analyst. First Republic has been exploring strategic options, including a sale, Bloomberg News updated earlier this week.
“So maybe these $30 billion in deposits from the big banks only buy time, but the concerns persist”, said Kakuda.
Analysts have been forced to extrapolate the data provided by First Republic to determine exactly how your financial position has changed in the last few days. An estimate of Jefferies Financial Group Inc.. sets possible deposit outflows at US$89 billion. The bank said in a statement late Thursday that insured deposits “remained stable” between the close of business on March 8 and 15.
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“Daily deposit outflows have declined with difficulty,” he said First Republic. According to a December filing, the bank had about $119 billion in uninsured deposits from last year, a little more than 67% of its US$176 billion in total deposits.
Meanwhile, analysts have been cutting their recommendations on the bank. David ChiaveriniWedbush analyst, downgraded First Republic to neutral, saying it is difficult “to arrive at a realistic scenario where there is residual value to FRC common shareholders” in the event of a sale.
For his part, Eric Compton, Strategist at Morningstar Inc., He said that while the $30 billion in deposits seems positive on the surface, it also confirms some of people’s worst fears about the bank’s health.
“Prior to this event, we did not know for sure if First Republic had experienced a bank run, or if perhaps the bank would be able to keep its deposit base relatively intact,” he wrote on Friday. “The disclosures made by First Republic regarding this latest liquidity injection remove all doubts that a major liquidation of deposits has taken place”.
Evercore ISI analysts were addressed by Juan Pancari said in a research note Thursday night that “the deposit infusion allows the bank to fight another day” but that “It’s probably a temporary fix, particularly given the 120-day window.”
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First Republic specializes in private banking and has built a wealth management franchise with some $271 billion in assets. Those who watch the company’s woes say it helps make it a target for potentially attractive acquisitions.
“They were never a traditional bank”, said John Allison, a former head of BB&T Corp., a predecessor company to Truist Financial Corp. “They’re in a very good market and have very good market share. They were going after high-income deposits. The downside of that is they don’t have insurance.”
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