First Republic Bank considers sale and shares plunge 35% at opening bell – as Goldman issues recession warning despite Credit Suisse stock soaring 35% after central bank offered lifeline
- Goldman raised chances of US recession in next 12 months from 25% to 35%
- Cited crisis in small and mid-sized banks after collapse of Silicon Valley Bank
- However, Credit Suisse appears on firmer ground thanks to a $54bn lifeline
First Republic Bank is reportedly considering a sale, as pressure mounts on small and mid-sized US banks following the collapse of Silicon Valley Bank and a banking crisis unfolds on both sides of the Atlantic.
Shares of First Republic dropped 35 percent at the opening bell on Thursday, after Bloomberg reported the San Francisco-bank is exploring strategic options, including a sale, citing people familiar with the matter.
First Republic, which has a similar client base to failed SVB, has been most impacted by fears of contagion, and on Wednesday had its bond rating cut to Junk status by Standard & Poors. A bank spokesman did not immediately respond to request for comment.
Overall, Wall Street opened lower Thursday, but the losses were modest, with the Dow Jones Industrial Average falling 47 points, or 0.15 percent, after a whirlwind several days dominated by a growing banking crisis.
But even after the Swiss National Bank offered troubled Credit Suisse a $54 billion lifeline, shares of the Big Four trillion-dollar US banks continued to slide on Thursday.
Meanwhile, Goldman Sachs analysts say pressure on small and mid-sized US banks following the collapse of Silicon Valley Bank significantly raises the probability of a recession this year.
In a report on Thursday, Goldman Sachs dramatically increased its probability of the US economy entering a recession in the next 12 months to 35 percent, a 10-point increase, citing the stress on small banks.
Smaller US regional banks continued to see sharp declines in valuation, with First Republic stock dropping as much as 30 percent in the premarket and raising questions about whether it would seek a buyer.
Goldman Sachs analysts, led by chief economist Jan Hatzius, warned that the collapse of SVB and Signature Bank highlights the delayed effect of the Federal Reserve’s aggressive rate hike campaign.
‘Ongoing pressure could cause smaller banks to become more conservative about lending in order to preserve liquidity in case they need to meet depositor withdrawals, and a tightening in lending standards could weigh on aggregate demand,’ said economists at Goldman Sachs led by Jan Hatzius.
As well, analysts at JPMorgan said the crisis at smaller banks will hamper business loans and trim one-half to one percentage point from gross domestic product over the next year.
JPM notes that small banks, as defined by the Fed, account for 30 percent of aggregate banking system assets, and 38 percent of the system’s loan book in the US.
The crisis comes after Silicon Valley Bank collapsed last Friday, followed by Signature Bank over the weekend. Crypto-focused lender Silvergate also entered voluntary liquidation last week.
Silicon Valley Bank’s collapse was the second largest in US history, behind only the 2008 collapse of Washington Mutual Bank.