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FRC Stock Alert: Why First Republic is still down 15% today

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Shares in Bank of the First Republic (NYSE:FRC), which rose 10% after a major bank bailout, fell 12% overnight.

A consortium of major banks formed by federal regulators has filed $30 billion in the First Republic after warnings it might sink.

But hedge fund manager Bill Ackman condemned the movementinsisting that only direct federal action to guarantee all deposits will end the current crisis of confidence.

The stock’s decline came after First Republic suspended its dividend. The bank says it is exploring strategic options.

The bank runs

Many banks hold long-term government loans that have plunged in value with rising interest rates. The race to SVB Financial (NASDAQ:SIVB) Silicon Valley Bank was born when it sold those loans at a loss and sought to compensate with new equity.

In testimony before the Senate Banking Committee, Treasury Secretary Janet Yellen insisted the government had not increased general deposit insurance over $250,000. Only banks that a consensus of regulators say are “important to the system” will get relief, she said, in response to a question from Oklahoma Sen. James Lankford.

Yellen said the big banks’ move to shore up the First Republic is a signal that the private banking system can hold its own. Bank stocks rose during his testimony.

About $11.9 billion was borrowed from the government’s bank term funding program after it launched on March 12.

Charles Schwab (NASDAQ:SCHW) reported that customers moved $8.8 billion from bank-backed Prime funds to government-backed securities in three days. The change doesn’t matter much for Schwab, but for the banks, which are losing deposits as customers lose confidence.

FRC Stock: What Happens Next?

The defense of the First Republic was to tell depositors that their money is safe in the banking system. But many depositors still do not believe it.

The crisis is not over. But if markets return to normal, investors buying bank stocks now will see big profits.

As of the date of publication, Dana Blankenhorn did not hold any position in the securities mentioned in this article. The opinions expressed in this article are those of the author, subject to InvestorPlace.com Publication guidelines.


Not all news on the site expresses the point of view of the site, but we transmit this news automatically and translate it through programmatic technology on the site and not from a human editor.
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