As First Republic Continues To Slide, Other Regional Banks Are Rallying

Standard & Poor's lowered its credit rating of San Francisco-based First Republic Bank, another barometer of the regional bank crisis, followed by a slide in First Republic Bank shares on Monday, in spite of the fact that shares of local rival banks rose as well.

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The rating is still on CreditWatch Negative, which means it remains on the watch list for the credit rating company. This is after S&P had cut First Republic's rating to B+ from BB+ just last week.

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As the collapse of Silicon Valley Bank prompted investors to rethink other banks with large uninsured deposit bases, the stock of Pacific Union Bank fell 15% on Monday, adding to a decline of more than 80% already this month.

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While First Republic declined on Monday, the SPDR S&P Regional Banking ETF gained 4.9% despite First Republic's decline. PacWest Bancorp gained 1% on Monday, while KeyCorp increased by 4.7% and Zions Bancorp gained 7.8% respectively.

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The stock price of New York Community Bancorp, which made an agreement over the weekend to become the new owner of the shuttered Signature Bank, surged more than 30% over the weekend.

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The First Republic Bank also suspended its dividend and said it had just under $34 billion in cash, including the new deposits, through March 15, as a direct result of a group of major banks agreeing to deposit $30 billion in their bank to boost confidence in regional banks.

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Among the many reasons why 11 U.S. banks have pumped in deposits, the company announced that the company was borrowing money from the Federal Reserve between $20 billion and $109 billion, and the company also disclosed that its borrowings from the Federal Home Loan Bank (FHLB) increased by $10 billion. According to the S&P in its note Sunday, the suspension of the bank’s common stock dividend together led us to believe it was probably experiencing high liquidity stress due to substantial deposit outflows over the past week.

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Trade Algo reported on Monday that First Republic has hired an investment bank to give it advice about potential options, including a potential sale. It is, however, likely that the bank will take further steps to shore up its balance sheet, including a possible sale. It has emerged that, as a result of deposit outflows and a decline in long-term bonds and mortgages, the bank’s balance sheet is currently suffering by about $25 billion in losses. According to sources familiar with the situation, no serious bidders have emerged for the deal.

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The Swiss regulators facilitated the forced tie-up between UBS and Credit Suisse over the weekend with the objective of preventing the banking crisis from spreading across global markets.

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There have been discussions among executives that the turmoil in regional U.S. banks has caused so much instability that the already unstable organization was forced to merge with a rival to avoid collapse.