US bank First Republic was still falling on the stock market on Monday, despite rescue efforts by authorities and rival institutions, the WSJ reported, citing AFP.

First Republic BankPhoto: Jakub Porzycki / Zuma Press / Profimedia

The bank is in turmoil

First Republic, founded in 1985, is headquartered in San Francisco and has branches primarily in California and cities on the East Coast. At the end of 2022, it was the 14th largest US bank by assets.

According to S&P Global Ratings, 68% of the money placed in the bank is in accounts with more than $250,000, the maximum amount usually guaranteed by the government.

After the rapid bankruptcy of three American banks, investors and analysts feared that customers would panic and withdraw their money en masse.

This was directly confirmed by First Republic on Thursday, when it said that it borrowed tens of billions from the US central bank (Fed) every day from March 10 to 15 at quite high rates.

A total of $70 billion was withdrawn in recent days, or about 40% of what the bank had at the end of 2022, according to the Wall Street Journal.

“Between the deposits, for which the bank will probably have to pay higher interest, and the rise in lending rates, its profitability will decrease,” notes Oleksandr Yokum from CFRA.

Not enough storage?

Faced with a free fall in stock prices, the bank tried to calm the market by announcing on March 12 that it had $70 billion in cash thanks to the Fed and JPMorgan Chase.

As the stock market slump continued, eleven major US banks on Thursday pledged to deposit a total of $30 billion into their accounts. This is a sign of trust because these deposits are not insured and therefore can lose their share.

S&P, which had already given the bank a speculative rating, downgraded it again on Sunday, saying a takeover by rivals was “unable” to solve its long-term problems.

First Republic said on Sunday that with 30 billion and its own reserves, it is “well positioned” to deal with short-term withdrawals.

But “if you are a client of a bank and you see that its rating is lowered twice in a few days, you may not want to keep your money there,” Oleksandr Yokum said.