First Republic Bank (NYSE:FRC) stock rose over 20% overnight as bargain hunters stepped in on optimism that a rescue plan for the San Francisco lender may be coming.
JPMorgan Chase (NYSE:JPM) CEO Jamie Dimon is reportedly leading the effort to keep the bank, which serves wealthy tech investors, from collapsing. JPM put $5 billion on deposit at the bank last week.
The rebound came after FRC stock plunged 47% on March 20 following a credit downgrade. The stock was expected to open on March 21 near $15/share, a market capitalization of about $4 billion. Early in February, shares traded for $147 each.
How to Save a Bank
First Republic has been in crisis since the closing of Silicon Valley Bank, which served many of the same customers. The joke was that SVB made people rich enough to be served by First Republic.
Dimon has expressed remorse over his efforts to save Bear Stearns and Washington Mutual during the 2008 financial crisis. JPM paid $3.3 billion for the two institutions but later paid another $19 billion to settle lawsuits involving the two companies. Dimon told shareholders in 2015 he would never do anything like Bear Stearns again.
If First Republic can be saved, it could be a bargain for investors. First Republic had $166 billion in loan assets at the end of 2022, most of them real estate loans.
Options for the bank include a direct investment by other banks to increase First Republic’s capital, an outside capital injection, or the sale of the bank.
The reports about First Republic sent other bank stocks higher overnight. Truist Financial (NYSE:TFC) of Charlotte rose 4%. So did Prosperity Bancshares (NYSE:PB) of Houston and Cincinnati’s Fifth Third Bank (NASDAQ:FITB).
FRC Stock: What Happens Next?
If First Republic can be saved, markets will take it as a signal that the banking crisis is over. That would be positive for the whole stock market.
On the date of publication, Dana Blankenhorn held no positions in any companies mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.