Shares of First Republic Bank surged to a record high, leading a broad rally in US creditors amid discussions to offer further support to the beleaguered creditor.
Shares jumped 30%, rebounding from the record low they closed on Monday, with other regional lenders including Western Alliance Bancorp and PacWest Bancorp posting double-digit gains as well. The KBW Regional Banking Index rose 4.8%, posting its biggest gain since January 2021, supported by a broad rally in the sector.
First Republic continued its rally to a session high, gaining as much as 60% after a Reuters report that the lender is considering a cut if attempts to raise new capital fail. Earlier, shares rose on optimism about the discussed new plan to help the First Republic. Under the plan, some or all of the $30 billion in deposits invested by a group of US banks will be converted into a capital injection.
The potential conversion “could add much-needed stability and be another vote of confidence for an involved lender,” wrote Bloomberg Intelligence analyst Herman Chan.
The rally is part of a broader recovery in the banking sector in Europe and the US as contagion fears eased after UBS Group’s deal to bail out Swiss lender Credit Suisse Group.
Investor confidence in First Republic waned after S&P Global Inc. downgraded the lender again on Sunday, days after the ratings firm downgraded the lender to junk. First Republic’s share price has tumbled over the past two weeks as savers withdrew money after the Silicon Valley Bank bankruptcy dampened sentiment.
The stock is still down more than 80% from the $115 level it was trading at before the Silicon Valley Bank troubles.
Janney Montgomery Scott analyst Timothy Coffey cut his fair value estimate for the stock to $10 from $40 in a note Tuesday ahead of Reuters’ announcement of a possible cut, while maintaining a neutral rating.
“We believe the capital increase will ease the burden on the FRC,” the analyst wrote. “We also believe that the FRC is facing significantly higher interest costs due to the replacement of deposit outflows with higher value loans and deposits.”
Wall Street’s big lenders also joined in Tuesday’s rally, with stocks of Citigroup Inc., Wells Fargo & Co. and Bank of America Corp. rose by more than 2% each.
US officials are considering how they could temporarily expand FDIC coverage to all deposits if the crisis intensifies, Bloomberg News reported, citing people familiar with the talks.
Treasury Secretary Janet Yellen said the government could repeat the drastic action it recently took to protect savers if smaller banks were at risk.