First Republic Bank’s preferred notes fell in secondary trading after the regional lender reported lower deposits than expected and said that it was exploring an asset sale.
(Bloomberg) — First Republic Bank’s preferred notes fell in secondary trading after the regional lender reported lower deposits than expected and said that it was exploring an asset sale.
The bank’s 4.375% notes due 2046 dropped seven cents on the dollar from the open to trade at 34 cents, as of 4 p.m. New York time, according to Trace bond data. Its 4.625% debt due 2047, meanwhile, shed six cents.
The San Francisco-based bank, which needed a $30 billion lifeline from larger lenders to weather a crisis that toppled three banks last month, is now exploring divesting $50 billion to $100 billion of long-dated mortgages and securities as part of a broader rescue plan.
Read more: First Republic Mulls $100 Billion Asset Sale in Turnaround Plan
Its deposits, meanwhile, plunged 41% to $104.5 billion in the first quarter. That was well below the $137 billion average analyst estimate compiled by Bloomberg.
A crisis of confidence at regional lenders across the US left investors fretting about the potential for any contagion effect to hit the broader market. Risk premiums on an index of financial debt tracked by Bloomberg surged after Silicon Valley Bank collapsed in March. While those spreads have recovered somewhat, they are still elevated compared to pre crisis levels.
Further volatility within the banking space could lead to wider spreads across the asset class and could further tighten lending standards for small and medium sized businesses across the country that rely on regional lenders for funding.
Preferred securities, which is a blend of debt and equity, is considered riskier than bonds or loans because investors sit further back in line to be repaid should the company default on its borrowings.
Risk sentiment across the US investment-grade bond market waned Tuesday as well. The spread on the Markit CDX North American Investment Grade Index, which rises as credit risk increases, widened as much as 3.5 basis points, according to data compiled by Bloomberg, the biggest increase since April 4 on an intraday trading basis.
First Republic declined to comment.
–With assistance from Nina Trentmann.
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