What happened
Shares of First Republic (FRCB) surged as much as 32% this morning before giving back some of those gains. First Republic traded close to 16% higher as of 11:37 a.m. ET today.
The jump comes after First Citizens BancShares (FCNCA -0.00%) announced this morning that it would acquire all of SVB Financial's former loans and deposits. It also comes as regulators are contemplating more liquidity assistance for banks.
So what
First Republic has been one of the banks that investors have been watching very carefully since the collapse of SVB Financial and Signature Bank. That's because First Republic is sitting on a substantial amount of unrealized bond losses and also has a lot of uninsured deposits that are more of a flight risk. The Wall Street Journal reported that First Republic saw deposit outflows of around $70 billion. Shares of the bank are down more than 88% over the last month.
Shares seem to be rallying today in part due to the First Citizens-SVB deal, although I don't think this will benefit any of SVB's common shareholders, but it could be good for regulators and the sector to get past.
"Shunting parts of the failed bank off to a new owner may give the regulator more capacity to deal with problems still threatening to pop up elsewhere," said Susannah Streeter, head of money and markets at Hargreaves Lansdown, according to The Wall Street Journal.
Over the weekend, media outlets also reported that regulators are considering providing more liquidity support for banks. The Federal Reserve did launch the Bank Term Funding Program (BTFP) to support depositors of SVB and Signature and shore up confidence in the banking system.
BTFP allowed banks to pledge their underwater securities books as collateral for additional funding. However, that didn't benefit banks like First Republic, which has the bulk of its securities in municipal bonds, which didn't qualify as collateral.
Now what
Stabilization in the banking system, especially in relation to deposit flows, as well as further support from regulators and more time, is all good news for First Republic.
But as I've written in the past, I still see the bank being in a tough spot because of what may happen to its earnings from having to replace lower-cost deposits with higher-cost borrowings. First Republic's best hopes are for it to be able to persuade depositors that have left to return to the bank. This may not be impossible, but it's not something I'm willing to invest in right now.
