First Republic shares surge on reports that big banks may add deposits

First Republic Bank shares went on a wild ride on Thursday, sinking as much as 36% in early trade before shooting to a 22% gain later in the day amid reports that larger banks may step in to shore up the regional financial institution.

The stock swing comes as Silicon Valley Bank’s (SVB) sudden collapse on Friday raises concerns about the financial health of regional lenders. First Republic, with $212 billion in assets under management, has seen its market value shrink from more than $22 billion in January to less than $7 billion.

Shares of First Republic rose $3.90, or 13%, to $35.06 in early afternoon trading after touching an intraday high of $38. They had sunk as low as $19.80 earlier in the day.

The similarities between First Republic, founded in 1985 in San Francisco, and $210 billion SVB go beyond size. As with its neighbor, a significant share of First Republic’s deposits are uninsured, which makes it more prone to withdrawals from skittish customers. 

On Thursday, larger financial institutions — including Citigroup and Wells Fargo — were in discussions to deposit billions of their assets into First Republic to shore it up, the Wall Street Journal reported. The bigger banks could contribute $30 billion to stabilize the bank, according to Bloomberg News. A deal could be announced as early as today, the media outlets reported.

A new round of capital would come on top of the extra cash reserves First Republic said it added earlier this week from the Federal Reserve and JPMorgan Chase.

First Republic’s credit rating was downgraded by Moody’s this week, with the agency noting that the bank holds less cash in reserves compared to other lenders its size. In a research note, the credit rating agency noted that First Republic is “more sensitive to rapid and large withdrawals from depositors” than other banks.

“If it were to face higher-than-anticipated deposit outflows and liquidity backstops proved insufficient, the bank could need to sell assets, thus crystallizing unrealized losses,” Moody’s said. 

First Republic didn’t respond to a request for comment. 

CEO Mike Roffler said earlier this week that the bank has a “very strong” amount of capital, citing $70 billion available for operations. 

Pacific West, Zions, Western Alliance and other regional banks saw their stocks plummet this week after SVB’s sudden seizure by financial regulators spooked investors. Many of those stocks regained ground Tuesday after President Biden reassured Americans they can have confidence in the U.S. banking system, and regulators pledged that all deposits at SVB would be available to customers. 

Treasury Secretary Janet Yellen on Thursday sought to allay concerns about the stability of U.S. banks in an appearance before the Senate Finance Committee.

“I can reassure the members of the committee that our banking system is sound, and that Americans can feel confident that their deposits will be there when they need them,” she told lawmakers. “This week’s actions demonstrate our resolute commitment to ensure that depositors’ savings remains strong and that depositors’ savings remain safe.”