First Republic shares fall as Yellen says not considering ‘blanket insurance’ on bank deposits

NEW YORK, March 22 (Reuters) – A “bull” scenario for shares of First Republic Bank (FRC.N) beleaguered as it perceives its choices have become more difficult Wednesday after Treasury Secretary Janet Yellen said there could be no discussion of insurance for all bank deposits without approval from the US Congress.

First Republic, whose shares have lost much of its value since the banking crisis began in the US on March 8, was one of the banks that spoke to peers and investment firms about a potential deal after US regulators took over Silicon Valley Bank (SIVB.O) and Signature Banks (SBNY.O) followed bank runs.

Morgan Stanley analyst Manan Gosalia, in a report earlier this week, set a target price of $54 for First Republic stock in a best-case scenario. Stocks on Wednesday closed at $13.33, down 15.5%. The optimistic case is based on a scenario where the Federal Deposit Insurance Corp (FDIC) insures all consumer deposits until the end of a banking crisis, triggering the return of most customer deposits. , according to the report.

Those hopes were dampened Wednesday, after Yellen told a hearing of the US Senate Appropriations Subcommittee on Financial Services that she was not considering such a move without congressional approval and was reviewing bank risks on a case-by-case basis.

“I haven’t considered or discussed anything to do with blanket insurance or a backlog,” he said.

On Tuesday, he said the Treasury and regulators had a “firm commitment” to safeguarding the deposits of smaller institutions, including community banks.

His latest remarks affect all regional bank stocks, said RJ Grant, head of trading at Keefe, Bruyette & Woods.

“Yellen certainly struck a different tone. There was a sense that there was talk behind the scenes in Washington that depositors would be protected,” Grant said.

JPMorgan Chief Executive (JPM.N) Jamie Dimon met with Lael Brainard, director of the White House National Economic Council, on Wednesday during a planned trip to Washington, according to a person familiar with the situation. The meeting agenda is not clear. It happened when the First Republic’s efforts to secure capital injections continued.

The Morgan Stanley report assesses that the potential extension of FDIC insurance could reinstate the majority of First Republic’s customers. The banks involved in the First Republic rescue negotiations sought a loss-sharing arrangement with the US government similar to the terms agreed by Switzerland’s UBS Group (UBSG.S) in its emergency takeover of rival Credit Suisse (CSGN.S), according to an industry source.

The acquirer will receive support if after purchasing First Republic it finds larger losses than expected, added the source, who requested anonymity to disclose private conversations.

The First Republic declined to comment.

Banks are looking for ways to downsize if efforts to raise new capital fail, Reuters reported on Tuesday, citing three people familiar with the matter.

Even if it does get a cash infusion, lenders may need to take losses on securities in so-called held-to-maturity portfolios, write Morgan Stanley analysts.

Prospective buyers would need to absorb $26.8 billion in mark-to-market losses from First Republic’s portfolio of loans and securities, while an additional $9.5 billion is needed to recapitalize the bank, Morgan Stanley analysts estimated.

In a worst-case scenario, First Republic shares would drop to just $1, according to Morgan Stanley analyst estimates.

Citigroup withdrew its forecast for First Republic on Tuesday and is reviewing the stock. Analysts Arren Cyganovich and Kaili Wang said in a report that “some form of government intervention appears increasingly likely, although in what form remains unclear.”

Reporting by Tatiana Bautzer and Chris Prentice in New York Additional reporting by Sinead Carew in New York Editing by Lananh Nguyen, Nick Zieminski, Matthew Lewis and Leslie Adler

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