First Republic’s $21bn rout puts S&P status in question

At roughly $800m, First Republic has by far the smallest market cap in the US equity benchmark after wiping out more than $21bn in market value. Pic: Eric Thayer/Bloomberg

First Republic Bank’s membership in the S&P 500 could be in jeopardy after the troubled bank’s stock set a new all-time low that pushed its market capitalisation below $1bn (€906bn).

The stock plunged over 30% on Friday and was halted amid reports that a Federal Deposit Insurance receivership is the most likely rescue scenario for the lender. Earlier in the week, the shares were beaten down after the bank’s earnings report showed a nosedive in deposits and raised further questions about its survival.

At roughly $800m, First Republic has by far the smallest market cap in the US equity benchmark after wiping out more than $21bn in market value.

Companies must have a market cap of at least $12.7bn to be considered for inclusion in the S&P 500, which has more than $15tn of investment assets tracking it.

“Given that the market cap has come down and that the business model is changing and the outlook for the company has changed so materially, it would not be surprising to see it swapped out of the S&P 500,” Wedbush analyst David Chiaverini said.

However, companies can fall below the threshold for inclusion and still stay in the index, said Howard Silverblatt, senior index analyst at S&P Dow Jones Indices. While he declined to comment on the San Francisco-based bank First Republic specifically, he said companies do not have to maintain profitability or market capitalisation standards to continue to be included.

“Getting in is one thing,” Mr Silverblatt said, but staying in is different.

A spokeswoman for S&P Dow Jones said they cannot comment on potential index additions or deletions.

Banks collapse

First Republic shares have been under siege for more than a month following the collapse of SVB Financial Group’s Silicon Valley Bank and Signature Bank in March, both of which were also removed from the S&P 500. Its earnings report Monday showed a 41% drop in deposits during the quarter. And the firm is reportedly exploring divesting $50bn to $100bn of assets.

If the company were to be removed from the S&P 500, it would likely further the stock’s tailspin given the range of funds that track the index and would be forced to sell the shares.

“To the extent that it gets kicked out of the S&P 500, that would lead to additional selling pressure on the stock,” Mr Chiaverini said. “It would be technical and temporary, but nonetheless, a number of shareholders that previously were owning it would no longer own it because they would essentially have to rebalance their funds out of it and into whatever one gets put in in its place.”

Meanwhile, the Federal Reserve’s bank-supervision chief called for a sweeping reevaluation of how the institution oversees US financial firms following the failure of Silicon Valley Bank, which he blamed on the company’s weak risk management and supervisory foot-dragging by the US banking regulator.

Bloomberg