The First Republic bank’s shares dropped 13.1% on Monday following news that it would raise further capital. In fact, this stoked concerns about its liquidity despite a $30 billion bailout last week.
On Sunday, S&P Global further downgraded the bank to junk status and warned that the recent infusion of cash from 11 big U.S. banks might not be enough to address its liquidity issues.
However, some of the major banks taking part in the unprecedented support saw a rise in share price, erasing premarket losses. In addition, Bank of America, Citigroup, and JPMorgan Chase & Co. all saw gains of between 1% and 2.5%.
Once UBS Group completed the acquisition of financially distressed rival Credit Suisse Group AG with state backing, global bank equities and bonds also came under pressure. As a result, several Credit Suisse bondholders suffered losses as a result of the agreement.
Moreover, investors are worried that First Republic Bank will also need to be taken over, according to Jason Pride, chief investment officer of private wealth at Glenmede, even though the bank claims to have the resources to survive.
The New York Times reported late on Friday that San Francisco-based First Republic is in discussions to raise cash from other banks or private equity companies by issuing new shares and may even negotiate a deal for selling.
According to Reuters’ story on Sunday, the lender was still working to put together a capital raising, but there were signs whatsoever of reaching an agreement.
Although a major amount of the lender’s deposits are uninsured, First Republic’s shares have lost 80% of their value over the past seven sessions due to worries of a bank run.
After their steep declines the previous week, other regional lenders mainly recovered. The S&P 1500 regional banks index increased by almost 4%, which outpaced the 2.6% increase in S&P 500 banks.
Following the bank’s announcement that deposit outflows had steadied and that its available cash of more than $10.8 billion exceeded all uninsured deposits, PacWest Bankcorp saw a rise of 21.2%.
