SVB Contagion Is Spreading To First Republic Shares

First Republic Bank shares fell 78% Monday, despite efforts by the US regional lender to reassure investors about its liquidity following the collapse of Silicon Valley Bank.  

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The bank's shares declined despite a statement it made late Sunday stating that the bank had more than $70 billion in unused liquidity to fund its operations as a result of agreements it had with both the Federal Reserve and JPMorgan Chase & Co.

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“As a result of the additional borrowing capacity provided by the Federal Reserve, continuing access to funding from the Federal Home Loan Bank, and the availability of additional financing from JPMorgan Chase & Co., First Republic will be able to increase, diversify, and further strengthen its existing liquidity profile,” the bank announced.

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Investors have not been convinced by the assurances, with many of them turning to American and German bonds as a form of safety, underlining their concerns about the potential for rising interest rates to uncover hidden risks elsewhere in the world. Despite the fact that analysts such as those at Deutsche Bank AG and Citigroup Inc. said the SVB crisis had little impact on the outlook for lenders in the region, including those which have recently posted robust profits, European bank stocks tumbled on Thursday. 

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According to the statement released by First Republic Bank, the Fed's new lending facility will provide more liquidity for the economy.

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First Republic Bank's liquidity came under pressure after SVB Financial Group's banking unit collapsed into receivership on Friday, which led to First Republic's liquidity being put under pressure as well as other regional banks.

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A deal has been reached by HSBC Holdings Plc, the UK's largest bank, to buy the UK arm of SVB after a weekend of frantic negotiations during which ministers and bankers explored a variety of ways to prevent the collapse of the SVB unit.

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SVB's German branch has been frozen by Germany's financial regulator BaFin following its announcement on Monday that it will not open in the country. The Silicon Valley Bank Germany Branch has been forbidden from selling assets or making payments because it is at risk of not being able to fulfill its commitments to creditors, BaFin said in a statement. 

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BaFin has stated that German operations are not considered to be systemically relevant. Moreover, according to the regulator, at the end of last year, the Frankfurt-based institution had a balance sheet that totaled €789.2 million ($842.3 million) and did not accept deposits. 

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There was no clear link between the SVB crisis and the fall in the share prices of Credit Suisse Group AG on Monday, with the stock price of the company dropping as much as 15%. There are concerns over the long-term viability of this troubled Swiss lender as it undergoes a complex overhaul and struggled to hold onto client cash as it has attempted to return to profitability in the midst of the overhaul.

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There has been some speculation that First Republic may be able to post better loan growth and asset quality than its peers, thanks to its focus on high-net-worth individuals in urban markets and a conservative credit culture before SVB's collapse.