First Republic bounces on report of work on wider deposit insurance plan

March 21, 2023 6:30 AM EDT

By Geoffrey Smith -- First Republic Bank (NYSE: FRC) stock bounced in premarket trading on Tuesday after reports suggesting that both government and private efforts to prop it up are advancing.

By 06:15 ET (10:15 GMT), First Republic stock was up 22% at $14.90. That's still barely 10% of what it was worth two weeks ago, however.

Bloomberg reported on Monday that federal authorities are looking at ways to temporarily expand insurance to all deposits in the banking system. According to the news agency, Treasury staff are studying to see whether they have the authority for what would be a politically controversial step, adding to the government's potential liabilities at the time of a bitter fight over the debt ceiling.

If such a move were to occur, it would ease the pressure on First Republic and several other mid-size regional banks that have come under in recent days, during which customers have pulled billions of dollars in deposits in a rush to avoid having their funds trapped by a collapse, as with Silicon Valley Bank and Signature Bank.

“Any universal guarantee on all bank deposits, whether implicit or explicit, enshrines a dangerous precedent that simply encourages future irresponsible behavior to be paid for by those not involved who followed the rules,” the Republican House Freedom Caucus said in a statement on Monday.

Separately, The Wall Street Journal reported that JPMorgan (NYSE: JPM) Chief Executive Jamie Dimon is leading talks with other bank CEOs about further and more radical support for First Republic, after the injection of $30 billion in deposits by a consortium of 11 large banks last week failed to stop the bank's stock sliding. CNBC reported that First Republic's management had identified a $25B hole in the bank's balance sheet, arising from unrealized losses on its portfolios of securities and mortgage loans.

As of the end of 2022, First Republic's books valued its equity at $17.5B, while it had unrealized losses of $5.3B on its bond portfolio. While that compares favorably with SVB, whose losses on its bonds wiped out its whole equity, FRC also has around $93B of fixed-rate mortgages on its books, mostly offered below the bank's current cost of funding. The difference between that portfolio's fair value and its book value was $19B.

Moody's and Standard&Poor's had both cut their ratings on First Republic on Monday, meanwhile.

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