Reassuring in the face of panic, speculation and rumors: this is the exercise that First Republic Bank, one of the banks about which the craziest rumors have been circulating since the collapse of Silicon Valley Bank on March 10, has just undertaken.
First Republic Bank shares closed down almost 15% during March 10 trading session. It is feared that this fall will continue when the markets reopen on March 13, if the regulators do not put out the fire around the banking sector, lit by SVB.
"In light of recent industry events, the last few days have caused uncertainty in the financial markets," Jim Herbert, founder and executive chairman, and Mike Roffler, CEO and president, wrote in a letter to clients. "We want to take a moment to reinforce the safety and stability of First Republic, reflected in the continued strength of our capital, liquidity and operations."
'Our Capital Remains Strong'
"Our capital remains strong. Our capital levels are significantly higher than the regulatory requirements for being considered well-capitalized. Our liquidity remains strong," they wrote.
They added that the bank has a "well-diversified deposit base" and continues to have access to "over $60 billion of available, unused borrowing capacity at the Federal Home Loan Bank and the Federal Reserve Bank."
"We are here to fully serve you. We stand ready to process transactions and wires, fund loans, answer questions and serve your overall financial needs – as we do every day," Herbert and Roffler said.
You can read their letter in full here.
The question is whether these words will be enough to reassure nervous investors and clients.
On social networks, images, supposedly showing long queues in front of First Republic Bank locations in California, were widely shared and commented on.
TheStreet cannot independently verify the authenticity of these videos.
First Republic Bank did not respond to a request for comment.
'Trust in the System May Have Dissipated'
"One major thread we’ve been following has been the contagion from SVB potentially spreading to other banks," said Odeon Capital Group LLC analyst, Dick Bove. "Reduction in bank deposits and the sharp negative reaction in the financial markets to the SVB developments suggest a deeper discontent with the banking industry’s treatment of their clients and investors.”
The analyst added: "Trust in the system may have dissipated, meaningfully."
Regulators are in a race against time to find cash for SVB depositors and avoid a worsening of the crisis.
In addition to First Republic Bank (FRC), rumors and speculation are also circulating about Signature Bank (SBNY), whose share price fell by 22.87% during the last trading session.
SVB’s failure, which is the second-largest of a bank in U.S. history, has shaken many investors. It was the result of a bank run, caused by the firm’s announcement that it planned to raise $2.25 billion by issuing new common and convertible preferred shares to shore up its finances, after it sold bonds in its portfolio of investments at a $1.8 billion loss.
About $42 billion of deposits were withdrawn by the end of March 9, according to a regulatory filing. By the close of business that day, SVB had a negative cash balance of $958 million.
SVB was the go-to lender for many tech companies and venture capital firms. It played an important role in the startup ecosystem, by providing specialized financial services, industry expertise, a valuable network, and a strong reputation.
One of the concerns is that there is a contagion to regional banks, which also do business with venture capital firms and start-ups. Regulators are considering extraordinary measures to avoid unpleasant surprises.
The Federal Deposit Insurance Corporation (FDIC) and the Federal Reserve are working on the creation of a fund that would allow regulators to backstop more deposits at banks that run into trouble, following the collapse of SVB, reports Bloomberg News.
