Shares of First Republic and Credit Suisse tumble despite new capital
Shares of First Republic Bank and Credit Suisse fell on Friday, having been disrupted on Thursday when both banks received emergency funding commitments aimed at easing their finances.
First Republic Bank sank 33 percent on Friday, closing at $23.03, while Credit Suisse fell 7 percent, ending the day at $2.01. The decline came after First Republic shares rose on Thursday, while Credit Suisse shares were unchanged, reflecting a short-term recovery.
The two banks received pledges earlier this week for the capital infusion, a consortium of 11 major financial institutions agreed to provide. 30 billion dollars In funding for First Republic Bank and the Swiss central bank agreed to provide approx. 54 billion dollars Credit to Swiss. Yet concerns about their financial stability continued on Friday, with First Republic announcing late Thursday – hours after banks pledged to provide financing – that it would freeze dividends.
One analyst said First Republic reported $176 billion in reserves in December, but its recent borrowing from the Federal Reserve may indicate depositors are pulling their money out faster than before.
“In our view, this raises fears that other regional banks may see deposit outflows, although we would expect a much smaller volume of outflows,” CFRA Research analyst Alexander Yocum said on Friday. wrote in a note.
Credit Suisse, meanwhile, failed to address deep concerns about its finances despite the approval this week Borrowing up to $54 billion Capital Economics analysts from the Swiss National Bank said the capital infusion would not solve Credit Suisse’s main problem, which is that it has not been profitable in two years.
Credit Suisse plans to resolve the issue over a three-year period, but it is uncertain whether the market will allow it that long, Andrew Cunningham, chief Europe economist at Capital Economics, said in an investor note on Friday. .
Similarities to Silicon Valley Bank
Investors became wary of First Republic San Francisco after California regulators. Captured Silicon Valley Bank on March 10. As with Silicon Valley Bank, a significant portion of First Republic’s deposits are uninsured, exposing its customers to high risk of withdrawals. The bank has $212 billion in assets under management and approximately 7,200 employees.
With questions swirling about First Republic’s financial stability, its stock price has plummeted, losing 81% of its value since the start of the month.
Meanwhile, Credit Suisse’s problems began long before the Silicon Valley bank meltdown. It posted a net loss of $8 billion last year — the company’s biggest ever record.
Cunningham said Credit Suisse is “a major risk to the global economy” in part because it has subsidiaries outside Switzerland and handles hedge fund trading.
Shares of other regional banks, including KeyCorp, Pacific West, Western Alliance and Zions, fell between 7% and 11% on Friday, but those banks were not promised billions of dollars in bailouts like Credit Suisse and First Republic.