Fate of First Republic Hangs in Balance as Shares Plummet Again

One potential buyer, a major bank, conducted deep research into First Republic’s accounts and dropped out, a person familiar with the negotiations said.

First Republic has also seen several downgrades of its credit in recent days. On Friday, Moody’s said it was downgrading the bank because of its increased reliance on short-term borrowing, including from the Federal Reserve and the consortium of banks. Repaying interest on loans can be expensive for a bank that is trying to shore up its cash.

“Moody’s believes the high cost of these borrowings, combined with the high proportion of fixed rate assets at the bank, is likely to have a large negative impact on First Republic’s core profitability in coming quarters,” the agency said in a note. Moody’s also said that it was unclear how First Republic would find a way back to being profitable again.

Standard Poor’s, in its own downgrade Sunday, said the bank continued to face “substantial business, liquidity, funding, and profitability challenges.”

If none of those dynamics has surprised season bank veterans, the speed of the fall of some banks has shocked them. As the JPMorgan Chase chief executive, Jamie Dimon, was rallying support from other bank chieftains for last week’s bailout, some leaders of other banks told him they doubted it would work, three people briefed on those discussions said.

Article source: https://www.nytimes.com/2023/03/20/business/first-republic-bank.html