NEW YORK/BERLIN – First Republic Bank shares sank more than 45% to another record low on Monday, extending recent declines as the emergency intervention last week by 11 of the world's largest lenders has yet to stabilize the midsized bank.
The California-based lender was downgraded for a second time this week over the weekend by S&P Global, contributing to the declines on Monday. First Republic was also hit by a report from The Wall Street Journal that J.P.Morgan was in touch with other big lenders about putting together another rescue plan.
Among the possibilities being discussed is converting some of the $30 billion the group of 11 banks deposited into First Republic into shares, which would dilute the value of the stock held by other shareholders.
JPMorgan declined to comment on the Journal report. Meanwhile, First Republic did not comment about the report either but said the lender is "well positioned to manage short-term deposit activity."
First Republic's stock has continued to sink despite the rescue deal announced last week as many customers have continued to move their money elsewhere.
S&P Global says that last week's lifeline is not "a longer-term solution to the bank's funding issues."
Meanwhile, Ed Moya, a senior analyst at Oanda, said Wall Street still doesn't have a lot of confidence First Republic will be able to find a way forward.
"Investors are skeptical First Republic will be able to attract any deposits, which will likely remain a problem for small and medium sized banks," he wrote in a note to clients on Monday.
Other regional lenders are higher, however
But there were signs of optimism emerging elsewhere.
Shares of other regional banks have regained some of the ground they lost, including Dallas-based Comerica and Fifth Third Bancorp, which is headquartered in Cincinnati.
Meanwhile, New York Community Bankcorp rose more than 30% after the Federal Deposit Insurance Corporation (FDIC) announced it had bought Signature Bank's assets. The FDIC took over Signature as part of a government rescue.
Broader stock indices were also higher with the Dow Jones Industrial Average rose 1.2% and the S&P 500 gained 0.9%.
The overall gains could help calm some of the worries about the stability of the bank system as the Federal Reserve is set to kick off its two-day meeting on Tuesday.
Markets are waiting to see how policymakers respond to all the recent developments. The Fed is currently expected to weigh either raising interest rates by a quarter percentage point given that inflation remains high – or to hold them until it feels more confident about stability in the financial system.
UBS takes over Credit Suisse
The recovery in the U.S. markets comes after a turbulent weekend in global finance.
In a deal brokered by Switzerland's government, UBS Group on Sunday took over troubled lender Credit Suisse for more than $3 billion in an all-stock transaction.
The deal left some investors in about $17 billion worth of a riskier category of Credit Suisse debt with their investments wiped out.
Shares of Credit Suisse sank more than 50% but UBS shares gained modestly after initially declining.
Clemens Fuest, president of Germany's Ifo Institute for Economic Research, said Swiss regulators should be praised for acting quickly and coming up with a difficult solution that prevented what could have been a potential Credit Suisse bankruptcy, a scenario that would have risked sparking further contagion among its European peers.
But Fuest added that questions will remain about the deal.
"People will now think about bonds of other banks that they hold, and the question of who will be the next problem, hasn't gone away," he said.
Fuest predicted doubts will remain about weaker banks globally.
"I think generally what's going on is we have this separation," he said. "These strong institutions will get stronger, and the weak ones will get weaker, because if there is fear in the markets, people look for security more than before."
