First Republic shares tumble after bank rescue plan, dividend suspension

Friday’s drop reflects concerns that the big bank’s bailout deal has not fully resolved the problems of the First Republic, which also suspended its dividend on Thursday. The turmoil has analysts wondering if the company could be hard pressed to find a buyer.

“It’s not clear that it’s viable as a stand-alone entity,” said Julian Wellesley, global banking analyst at Boston-based Loomis Sayles & Co.

The First Republic declined to comment. In a regulatory filing on Thursday, the bank said deposit outflows had slowed significantly. The rescue deal, he said, was “a vote of confidence for the First Republic and the entire US banking system.”

The recent sudden collapses of Silicon Valley Bank and Signature Bank – the second and third largest bank failures in US history, respectively – sparked concerns that anxious customers could drain deposits from other small and mid-sized banks.

Fears rippled through global financial markets, weighing on equities and increasing demand for safe investments.

The S&P 500 closed down 1.1% on Friday, while the Dow Jones Industrial Average was down 1.2%. The tech-heavy Nasdaq Composite fell 0.7%. Gold hit an 11-month high. Investors bought US government bonds and bitcoin surged to its highest levels in months.

Still, the S&P and Nasdaq posted weekly gains. Dow industrials posted a small weekly loss.

First Republic shares have lost nearly 70% of their value in the past week.

Investors are especially concerned about the San Francisco-based lender because it caters to wealthy clients with large account balances that are not backed by the Federal Deposit Insurance Corp. the end of 2022, the records show.

Analysts at Jefferies estimated that as much as $89 billion in deposits left the bank last week. The bank borrowed tens of billions of dollars from the Federal Reserve and the Federal Home Loan Bank to plug the hole.

Bank stocks suffered the most. The KBW Nasdaq Commercial Bank Index and the SPDR S&P Regional Banking ETF fell more than 5% to close at their lowest levels since 2020.

The deal with the big bank took some of the pressure off the First Republic, but it still has to deal with fickle depositors looking elsewhere for higher rates and then suddenly realizing the pitfalls of large uninsured balances.

The bailout deal offered the First Republic a temporary lifeline, KBW analyst Christopher McGratty wrote in a research note.

“The significance of these balance sheet changes – along with an announced dividend suspension – paints a bleak outlook for both the company and shareholders,” McGratty wrote.

Analysts at JPMorgan struck a more positive note, calling First Republic “a high-risk name with very high reward potential.”

It was a tough week for a number of regional banks.

US Bancorp had its worst week since 2009, with shares down about 19%. KeyCorp is down more than 25%, its biggest weekly decline in about three years. Even the biggest banks lost billions of dollars in market value, with Citigroup down nearly 9% from the previous week.

Still, executives say they aren’t seeing the level of panic from depositors that SVB and Signature claimed.

At Huntington Bancshares,

there have been “very modest” levels of deposit outflows this week, Chief Executive Stephen D. Steinour told The Wall Street Journal. The bank has sought to reassure its customers and, in some cases, has offered them other types of deposit products.

“You go through a shock like this, and it’s complicated, so for the average person, just trying to understand what happened and why it’s important,” Steinour said. “With any customers who are anxious, we proactively reach out.”

Anxiety over the banking system is not limited to the US. Credit Suisse Group AG on Wednesday secured a lifeline worth more than $50 billion from the Swiss National Bank to calm investors who dumped the bank’s shares this week.

—David Benoit contributed to this article.

Write to Gina Heeb at gina.heeb@wsj.com