Beleaguered bank First Republic (NYSE:FRC) is trending higher today as Jamie Dimon, CEO of universal bank JPMorgan Chase (NYSE:JPM), is leading the strategic plans to save it from complete failure. FRC stock rose over 15%, and JPMorgan was up about 2% in Tuesday’s pre-market trading at the last check.
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Dimon, along with the other ten large banks that infused $30 billion into FRC, are brainstorming to see the best possible outcome for “stabilizing” FRC. The main damage control required at the moment is to restore investor and depositor confidence in the First Republic, and doing so will infuse confidence in the entire banking system. All of these efforts are directed at averting a systemic risk to the economy.
The initial discussions include infusing fresh money into the bank to shore up its capital base. The discussions also include converting a part of the $30 billion into capital. Another possibility is to sell the bank to a larger, better-capitalized one. JPMorgan’s investment bankers are also appointed to advise FRC. Dimon-led JPM played a crucial role in the 2008 financial crisis by buying out failed investment banker Bear Sterns and regional bank Washington Mutual.
FRC had earlier noted that $30 billion would only be enough to meet its short-term liquidity requirements. Other than this, the FRC has also borrowed billions of dollars from the Federal Reserve and the Federal Home Loan Bank to meet its huge deposit outflow issues. To aggravate the problem, S&P Global (NYSE:SPGI) downgraded FRC’s credit rating to junk status.
Has First Republic Bank Failed?
There is still hope for First Republic Bank so long as the Dimon-led team is working on alternatives to rescuing it. FRC stock has lost 90% in the past month alone. The authorities are also pushing big banks to support smaller banks in order to avert a financial crisis, just as in the case of UBS’ takeover of Credit Suisse.
Meanwhile, analysts prefer to remain on the sidelines until the issues are resolved. On TipRanks, FRC stock has a Hold consensus rating based on three Buys, six Holds, and one Sell rating. The average First Republic price forecast of $149.43 implies 1126% upside potential to current levels.
