First Republic Bank, a U.S. regional bank headquartered in San Francisco, regained attention after newly released data showed that clients pulled a staggering 102 billion U.S. dollars in deposits in the first quarter. The bank saw its shares plunging nearly 50 percent on Tuesday and 30 percent on Wednesday.
It's reported that the bank is exploring to sell 50 billion to 100 billion U.S. dollars worth of assets at above-market rate to rebalance its books.
If the bank can't secure a rescue deal in time, it's likely to be put into receivership of the Federal Deposit Insurance Corporation (FDIC) following in the footsteps of Silicon Valley Bank and Signature Bank, which failed in March.
Despite First Republic Bank's reported efforts to convince large banks to share a few billion U.S. dollars of loss, defending the bank from falling and paying more membership fees to the FDIC, some analysts remain skeptical about the effectiveness of this approach.
It's a hard sell for First Republic Bank to offload some of its loans and securities at well above market rate, while investors' biggest fear is that First Republic Bank goes into receivership of the FDIC, said David Chiaverini, managing director of equity research at Wedbush Securities.
It's hard to imagine Jamie Dimon, chief executive officer (CEO) of J.P. Morgan, or Brian Moynihan, CEO of Bank of America, or Jane Fraser, CEO of Citigroup, each agree to buy 5 billion dollars mortgages and Treasuries at prices significantly above the market rates, said Don Bilson, head of event-driven team at Gordon Haskett Research Advisors.
It's becoming clearer each day that the First Republic Bank is toasted and the only question is whether the FDIC moves in before or during the weekend, said Bilson in a research note on Wednesday.
Moreover, more regional banks, in the event of a run on deposits, could be at risk of failure and could be acquired by big ones in the fallout of the ongoing banking turmoil.
A recent research, done by economists at several U.S. universities at the request of The New York Times, showed that the failures of Silicon Valley Bank and Signature Bank have continuing potential for widespread damage to the entire banking system, which has seen many banks' financial positions deteriorate as the U.S. Federal Reserve has raised interest rates to tame inflation.
Moody's Investor Services recently downgraded 11 U.S. regional banks including Zions Bancorporation, U.S. Bank and Western Alliance Bank, among others.
U.S. banking turmoil is not over yet, and it's expected that a large-scale restructuring would take place in the U.S. banking sector, said Tianyang Wang, associate professor in the Department of Finance and Real Estate at Colorado State University.
Many medium-sized and small banks won't survive the loss of deposits and some of them have to be acquired by big banks at low prices, said Wang during a recent webinar.
U.S. banks are paying more to hold on to deposits, setting aside more reserves for potential loan losses in the event of a potential recession, and are now more focused on building capital rather than returning it to shareholders in the form of dividends and buybacks, said a research note by Swiss banking giant UBS.
The highly anticipated Q1 results from U.S. banks did not raise any new red flags about stresses in the banking system, largely putting to rest concerns about systemic risks, said the UBS.
The UBS said it remains least preferred on financials stocks and continues to expect guidance and estimates to trend lower in the coming quarters as deposit pricing issues become more apparent and as the economy weakens.
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