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First Republic shares slid almost 33% after deposit infusion

First Republic’s shares were severely pressured Friday despite the bank receiving aid from other financial institutions the previous day. At the close of the market, the stock was down 32.8%, the worst performer in the SPDR S&P Regional Banking ETF (KRE), which fell 6.0%. PacWest lost 19%, Western Alliance dropped 15%, and US Bancorp declined more than 9%. Those losses came even after 11 other banks pledged to deposit $30 billion in First Republic as a vote of confidence in the company. “This action by America’s largest banks reflects their confidence in First Republic and in banks of all sizes, and it demonstrates their overall commitment to helping banks serve their customers and communities,” the group, which included Goldman Sachs, Morgan Stanley and Citigroup, said in a statement.

There were concerns that Thursday’s deposit infusion may not be sufficient to ensure First Republic’s future viability. First Republic has been downgraded by Atlantic Equities to neutral, citing the need for an additional $5 billion in capital. “Management is exploring different strategic options which may include a full sale or divestments of parts of the loan portfolio. The limited information provided implies that the balance sheet has increased substantially, which may well necessitate a capital raise,” analyst John Heagerty wrote. Meanwhile, Wedbush analysts put a $5 price target on First Republic, saying that a takeover could wipe out most of its equity value. “A distressed M&A sale could result in minimal, if any, residual value to common equity holders owing to FRC’s significant negative tangible book value after taking into account fair value marks on its loans and securities.” A report in the New York Times published late Friday night indicated that First Republic is in the process of raising capital by selling shares to other unnamed banks or private equity firms in a private transaction. In addition, the Times reported that the price, number and recipient of the shares were still under discussion, and it was also possible that the entire bank might be sold.