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FRC Stock Alert: Why First Republic Is Down Another 15% Today

  • First Republic Bank (FRC) fell after suspending its dividend and saying it was exploring strategic options.
  • The stock rose sharply after a consortium of big banks deposited $30 billion with it.
  • The banking crisis is not yet over.
FRC stock - FRC Stock Alert: Why First Republic Is Down Another 15% Today

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Shares in First Republic Bank (NYSE:FRC) stock, which rose 10% after a major bank bailout, fell 12% overnight.

A consortium of big banks put together by federal regulators deposited $30 billion into First Republic after warnings it could go under.

But hedge fund manager Bill Ackman condemned the move, insisting only direct federal action to guarantee all deposits will end the current crisis of confidence.

The move down in the stock happened after First Republic suspended its dividend. The bank says it is exploring strategic options.

The Bank Runs

Many banks hold long-term government loans whose value has plunged with rising interest rates. The run at SVB Financial’s (NASDAQ:SIVB) Silicon Valley Bank came about when it sold such loans at a loss and sought to make up for it with new equity.

In testimony before the Senate Banking Committee, Treasury Secretary Janet Yellen insisted the government has not increased general deposit insurance beyond $250,000. Only those banks that a consensus of regulators term “systemically important” will get relief, she said, in answer to a question from Oklahoma Senator James Lankford.

Yellen said the move by big banks to shore up First Republic is a signal that the private banking system can defend itself. Bank stocks rose during her testimony.

About $11.9 billion was borrowed from the government’s Bank Term Funding Program after it was launched on March 12. Another $142 billion went out in bridge loans, and the size of the Fed’s balance sheet ballooned by $297 billion.

Charles Schwab (NASDAQ:SCHW) reported that customers switched $8.8 billion from bank-backed Prime funds to government-backed securities in three days. The shift doesn’t matter much to Schwab but does matter to banks, which are losing deposits as customers lose confidence.

FRC Stock: What Happens Next?

The defense of First Republic was meant to tell depositors that their money is safe within the banking system. But many depositors still don’t believe it.

The crisis is not over. But if markets do return to normal, investors who buy bank stocks now will see big profits.

On the date of publication, Dana Blankenhorn held no positions in any securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the Publishing Guidelines.

Dana Blankenhorn has been a financial and technology journalist since 1978. He is the author of Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, available at the Amazon Kindle store. Tweet him at @danablankenhorn, connect with him on Mastodon or subscribe to his Substack.

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