First Republic Bank drops after expected quarter-point Fed hike; bank stocks fall

By Steve Gelsi and Ciara Linnane

First Republic moves into the red, bank stocks sink across the board after closely-watched Fed rate hike

First Republic Bank's stock fell Wednesday after the Federal Reserve hiked interest rates by 0.25%, as expected, while investors wait for further developments on support for the bank.

Across the sector, losses mounted in bank stocks toward the closing bell after the latest Fed move

The KBW Nasdaq Bank Index dropped 4.7% and the Financial Select SPDR Fund (XLF) fell by 2.3%.

Morgan Stanley (MS) and Goldman Sachs (GS) fell about 1% each after rising earlier in the day. Bank of America Corp. (BAC) dropped 3.3%, JPMorgan Chase fell 3% and Citigroup Inc. (C) dropped 3.1%.

The Wall Street Journal reported late Tuesday that First Republic (FRC) had tapped Lazard to help it review its options, and consultant McKinsey for post-crisis planning, citing people familiar with the matter.

Options on the table include a sale, a capital infusion and asset sales, the sources said, according to the Journal.

The outcome of Wednesday's Fed meeting came mostly as expected following recent events in the banking sector over the past 10 days, which has seen the failure of Silicon Valley Bank amid a run on the bank's deposits, along with the failures of two crypto-friendly lenders, Signature Bank and Silvergate Capital.

Adding to the tension is the forced shotgun wedding of Credit Suisse (CSGN.EB) and UBS (UBS) in Switzerland last weekend.

First Republic stock dropped 15.5%, a day after it rallied on reports JPMorgan Chase (JPM) was helping to bolster its capital.

Reuters reported First Republic is studying a potential sale of part of the bank or a downsizing of operations, to generate cash and contain costs.

The bank is exploring ways to address its unrealized losses on some assets, with Bloomberg News reporting that U.S. officials are working to overcome the issue.

Currently, First Republic has a negative book value, which is the difference between its assets and its liabilities.

PacWest Bancorp. (PACW) fell 17% after it said its total deposits fell to $27.1 billion as of Monday, down from $33.9 billion on Dec. 31. PacWest also said it held $11.4 billion in available cash, ahead of its total estimated uninsured deposits of $9.5 billion as of Monday.

The bank said it's "encouraged by the stability we have seen in our deposits and liquidity over the past week."

It borrowed $3.7 billion from the Federal Home Loan Bank, $10.5 billion from the Federal Reserve Discount Window, and $2.1 billion from the Fed's new Bank Term Funding Program. It also drew in $1.4 billion from Atlas SP Partners through a senior asset-backed financing facility.

PacWest said its venture banking business opened 130 new accounts since March 9.

Most regional bank stocks fell, including a 7.9% decline by Customers Bancorp Inc. (CUBI) and a drop of 7.8% by Metropolitan Bank Holding Corp. (MCB).

Stocks that had gained earlier in the session, such as Western Alliance Bancorp. (WAL), reversed course and moved lower. Western Alliance fell 5% and Ally Financial (ALLY) dropped by 3%.

MoneyLion Inc. (ML) dropped 9% to 50 cents a share as it approached its 52-week low of 44 cents a share. Founder and CEO Diwakar "Dee" Choubey said the company continues to successfully execute on its business as an alternative lender, but it's been swept up in bank-stock weakness.

"We're highly undervalued," Choubey told MarketWatch. The company, however, sees opportunities to pick up market share as borrowers look outside traditional banks for financial products.

The company managed to reduce headcount and cut expenses by $15 million in the fourth quarter as it pursues a path to profitability and maintains cash holdings currently at about $150 million.

The company was created 10 years ago partly to address unmet needs of borrowers after the Global Financial Crisis, and it regards the current downturn as a fresh opportunity, he said.

"It's a risk-off environment across the board," Choubey said. "We feel good about our fundamentals."

Also Read:First Republic stock is getting battered. Here's how the bank's tailspin started and why it hasn't stopped

-Steve Gelsi

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03-22-23 1623ET

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