© Reuters. FILE PHOTO: A First Republic Bank branch in Midtown Manhattan in New York City, U.S., March 13, 2023. REUTERS/Mike Segar
By Tatiana Bautzer and Chris Prentice
NEW YORK (Reuters) – A “bull case” scenario for beleaguered stocks Bank of the First Republic (NYSE:) as it believes its options became more difficult on Wednesday after Treasury Secretary Janet Yellen said there is no discussion of insurance for all bank deposits without approval from the US Congress.
First Republic, whose shares have lost much of their value since the US banking crisis began on March 8, is among banks talking to peers and investment firms about potential deals in the wake of the acquisition of Silicon Valley Bank by US regulators. signature bank (NASDAQ:) after the bank runs.
Morgan Stanley (NYSE:) analyst Manan Gosalia, in a report earlier this week, set a $54 price target on First Republic shares at best. Shares closed Wednesday at $13.33, down 15.5%. The optimistic case was based on a scenario in which the Federal Deposit Insurance Corporation (FDIC) insures all consumer deposits until the end of the banking crisis, triggering a return of most customer deposits. . , according to the report.
That hope dwindled Wednesday after Yellen told a US Senate Financial Services Appropriations Subcommittee hearing that she was not considering such a move without congressional approval and was reviewing bank risks on a case-by-case basis. .
“I have not considered or discussed anything to do with general insurance or deposit guarantees,” he said.
On Tuesday, he said the Treasury and regulators had a “strong commitment” to safeguard deposits at smaller institutions, including community banks.
His latest remarks affected all regional bank stocks, said RJ Grant, chief trading officer at Keefe, Bruyette & Woods.
“I’m sure Yellen took a different tone. There was a sense that there were behind-the-scenes talks in Washington that depositors would be protected,” Grant said.
JPMorgan (NYSE:) Chief Executive Jamie Dimon met with Lael Brainard, director of the White House National Economic Council, on Wednesday during a planned trip to Washington, according to a person familiar with the situation. The meeting agenda was unclear. It came as efforts by the First Republic to secure a capital injection continued.
The Morgan Stanley report considered that a possible extension of the FDIC insurance could bring back most of First Republic’s clients. The banks involved in the First Republic bailout negotiations are seeking a loss-sharing deal with the US government similar to the terms agreed to by Swiss group UBS in its emergency takeover of rival Credit Suisse, according to a industry source.
The acquirer would be supported if after buying First Republic it finds a bigger-than-expected loss, added the source, who requested anonymity to disclose private conversations.
First Republic declined to comment.
The bank is looking at ways to reduce its size if attempts to raise new capital fail, Reuters reported on Tuesday, citing three people familiar with the matter.
Even if it achieves an infusion of cash, the lender will likely have to take losses on the securities in its held-to-maturity portfolio, Morgan Stanley analysts wrote.
A potential buyer would need to absorb $26.8 billion in mark-to-market losses from First Republic’s loan and equity portfolios, while an additional $9.5 billion is needed to recapitalize the bank, Morgan Stanley analysts estimated.
In the worst case, First Republic shares would sink to just $1, Morgan Stanley analysts estimated.
Citigroup (NYSE:) withdrew its estimates for First Republic on Tuesday and put the stock under review. Analysts Arren Cyganovich and Kaili Wang said in a report that “some form of government intervention seems increasingly likely, although it is not clear in what form.”
