First Republic Bank stock tumbled another 27% in premarket trade Thursday, amid reports it’s exploring its strategic options, including a potential sale of the company. The move came as other bank stocks regained their footing after heavy losses on Wednesday.
Bloomberg reported late Wednesday that San Francisco-based First Republic based bank is seeking ways to boost its liquidity and that the bank would likely draw interest from larger rivals.
A spokesperson for First Republic declined to comment to MarketWatch about a potential sale.
First Republic stock fell Thursday while the banking sector received a lift from Credit Suisse
which said it would borrow nearly $54 billion from the Swiss central bank to “pre-emptively strengthen its liquidity”.
Also Read: Credit Suisse shares jump after saying it will borrow from SNB and buy back debt
First Republic’s stock has lost almost two-thirds of its value in the past week, partly because it serves some of the same individuals and clients in the Silicon Valley Bank universe of venture capital and private equity firms served by Silicon Valley Bank
which failed last week.
Investors then turned to view First Republic as the next domino likely to fall and its stock fell sharply.
Adding to its woes, S&P Global Ratings and Fitch Ratings on Wednesday downgraded First Republic’s debt into junk bond territory, due to concerns about deposit flight to bigger banks perceived to be safer.
See more: First Republic Bank downgraded to ‘junk’ by S&P and Fitch on fears further deposit flight will hurt profitability
A JP Morgan analyst said early Thursday that retail traders sold about $88 million First Republic single stock ETFs in the past week, accounting for most of the $163 million of financial ETFs that were dumped by those investors. Some $104 million of that total came from regional banks.
First Republic stock has now fallen 82% over the last 12 months, while the S&P 500
has fallen 10.7%.
On Sunday, First Republic said it had bolstered its financial position through “additional liquidity” from the Federal Reserve and JPMorgan Chase & Co.
giving it more than $70 billion in unused liquidity.
Banking analyst Richard Bove of Odeon Capital told MarketWatch on Wednesday that the First Republic debt downgrades were “pretty shocking” to the company because they’ll raise borrowing costs and raise questions about the health of the business.
But the company’s line of credit with JPMorgan Chase and a watchful eye from federal banking regulators will keep the bank healthy, Bove said.
“Is the company in deep trouble? No,” Bove said. “I don’t think the U.S. government will let it go.”
However, the bank does have some weaknesses such as a large number of investments in mortgage-backed securities with a fixed yield, while its cost of holding deposits is increasing, he said.
Also Read: Regional and big bank stocks choppy amid rising fears of banking crisis