First Republic stock is getting battered. Here’s how the bank’s tailspin started and why it hasn’t stopped.
Shortly after Silicon Valley Bank disclosed on March 8 that it was running short of cash and needed to raise capital, First Republic Bank’s epic stock slide began.
Supportive comments from Treasury Secretary Janet Yellen helped it snap back on Tuesday, but it’s hovering between positive and negative territory on Wednesday as investors await a key Federal Reserve decision on interest rates. With its sophisticated lending products and access to the technology startup world, Silicon Valley Bank was also known for its a customer base from the venture capital and private equity world.Those well-heeled clients of both banks started running into problems as interest rates rose last year, pundits warned of an economic slowdown and investors switched to a risk-off strategy of conserving cash and containing costs.
The company also disclosed that it had lost $1.8 billion on the sale of $21 billion in available-for-sale securities on its balance sheet to cover deposit withdrawals. Jefferies analyst Ken Usdin said the numbers revealed that First Republic’s total deposits had dropped by up to $89 billion in the week ended March 17 past week—or about three times more than the $30 billion injection from the bank.
Like Silicon Valley Bank, First Republic’s balance sheet has had more than the usual exposure to long-dated securities, which have been falling in value as interest rates rise.
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