Shares of First Republic crash after credit rating downgraded again despite $30 billion bailout package

Shares of First Republic Bank plunged nearly 40 percent in premarket trading Monday, days after it was announced the struggling lender would received a $30 billion lifeline from some of the largest US banks.

Before the bell, shares of the bank — which has emerged as one of the leading indicators of current bank volatility — fell as much as 37 percent, extending a ten-day blackout in which value fell 80 percent.

Equities have since recovered slightly from 8:30am, while several banks showed some stabilization after the recent collapse of the SVB – after US officials insisted that deposit outflows had slowed last week.

Since the collapse of the SVB, depositors have fled en masse from regional lenders, sparking a ripple effect that has rocked the US economy and several banks, including First Republic.

On Friday, in an unprecedented show of support from 11 banking giants, including JPMorgan Chase and Bank of America, the bank was awarded its multibillion-dollar lifeline, which was hailed as “very welcome” by the U.S. Treasury at the time and a demonstration of its “resilience”. of the American banking system.

Before the bell, shares of the bank — which has emerged as one of the leading indicators of current bank volatility — fell as much as 37 percent, extending a 10-day period whose value fell 80 percent in a matter of time. to dawn

The recent movement in the share price seems to indicate otherwise – and that the uninsured cash injection may not be enough to solve the burgeoning liquidity crisis.

That said, the pronounced premarket loss has since recovered by about half as of 9am ET, and traders have raised bets that the Fed is likely to pause Wednesday’s rate hikes to ensure financial stability.

Over the weekend, UBS agreed to buy rival Credit Suisse for $3.23 billion, in a shotgun merger engineered by Swiss authorities to avoid more market-shattering turmoil in the banking sector.

As a result, US-listed shares of the Swiss bank fell nearly 60 percent in premarket trading, which was expected to open at a new all-time low already reached last week after the bank admitted to finding “material weaknesses” in a report estimated it lost $8 billion last year.

Shares have since risen slightly to around $2, falling to $1.76 last week after the bank announced it would overtake its local rival – likely alarming millions of investors.

Similar turmoil is currently being felt by First Republic — enough that the S&P opted Monday to downgrade its long-term credit rating from BB+ to B+, having already downgraded the lender to sub-investment grade or junk territory last week.

Still, US stock futures were off their lows in the session. A drop in government bond yields on bets on less aggressive policy moves from the Fed supported gains in some tech and growth stocks like Apple and Microsoft.

Over the weekend, UBS agreed to buy rival Credit Suisse for $3.23 billion, in a shotgun merger engineered by Swiss authorities to stave off more market-shattering turmoil in the banking sector

U.S.-listed shares of Suisse then fell 58.4 percent in premarket trading, set to open at a new all-time low set last week after the bank admitted finding “material weaknesses” in an annual report that estimated that it lost $8 billion last year

“Traders are looking for near-term opportunities ahead of Wednesday’s Fed meeting,” said Jason Pride, chief investment officer of Private Wealth at Glenmede.

“Investors are still concerned about the banking sector, even though UBS has agreed to acquire Credit Suisse. They’re still a little concerned that there are other banks that need to be supported that we’re just not familiar with.”

Traders’ bets are now leaning towards a no-hike scenario, with 39% expecting the Fed to raise rates by 25 basis points.

Investors are also awaiting economic data including existing home sales, weekly jobless claims and durable goods this week to gauge the strength of the US economy.

At 6:44 a.m. ET, Dow e-minis were up 10 points, or 0.03%, S&P 500 e-minis were up 3.5 points, or 0.09%, and Nasdaq 100 e-minis were up 13.25 points, or 0. up 1%.

Top central banks also swung into action on Sunday to bolster money flows around the world, with the Fed offering daily currency swaps to ensure banks in Canada, Britain, Japan, Switzerland and the eurozone would have the dollars they needed. are to operate.

Large US banks such as JPMorgan Chase & Co, Citigroup and Morgan Stanley fell between 0.2% and 1.2%.

The S&P Banking Index and the KBW Regional Banking Index recorded their biggest drop in two weeks since March 2020 on Friday.