After the closure of Silicon Valley Bank (SVB), the next medium-sized US institution came under pressure on Thursday: The share price of First Republican Bank crashed by up to 39 percent in pre-market trading in New York. The cause was a report by the news agency Bloomberg, according to which the board is examining all options, including a sale. This put an end to the recovery of bank shares on the European stock market. Deutsche Bank shares temporarily fell by 2 percent and Commerzbank shares by 0.5 percent. At the opening, the share prices of the two major banks had shot up by up to 5 percent due to the rescue package for Credit Suisse.
Markus Frühauf
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San Francisco-based First Republik Bank has catered to wealthy retail clients. This clearly distinguishes it from SVB, which was active in start-up financing. Nevertheless, First Republic Bank (FRP) has also suffered from the closure of SVB. This is because customers withdrew deposits on a larger scale. This puts the FRP in a difficult position, wrote Christopher McGratty, analyst at investment bank Keefe, Bruyette and Woods.
In addition to the sale, the institute is also striving to create additional liquidity buffers. But this can cause problems, as the example of the SVB shows. It wanted to sell US government bonds in order to restore the liquidity lost due to the deposit withdrawal. However, after the significant rise in interest rates last year, the otherwise safe securities are showing price losses. Long-term government bonds have fallen in value by 20 percent. This threatens the realization of losses that reduce equity.
Emergency program of the central bank
The US Federal Reserve has therefore launched a credit programme for the latest problem cases among the American regional banks, which market participants compared in a first reaction with a guarantee of existence. However, the shock waves of the SVB and especially Credit Suisse continue to unsettle investors and clients of these institutions.
These concerns have heightened rating agencies: S&P Global and Fitch on Wednesday lowered the FRP rating to junk territory, which is no longer considered investment-worthy. For banks, the crisis of confidence will then intensify. Other U.S. regional banks were also pulled into the maelstrom: The share price of PacWest Bancorp fell on Thursday in pre-market business by 19.7 percent and that of Western Alliance Bancorp by 7.2 percent.