First Republic shares tumble to a new low

CNN New York --

First Republic stock dropped 47% Monday to a new record low, as Wall Street was unable to convince the bank that it could be viable.

After volatility caused shares to be stopped several times, they fell further following a Wall Street Journal report that JPMorgan (JPM), a rival bank, was trying to create a new rescue plan for First Republic.

JPMorgan and First Republic did not comment on the report.

First Republic spokesperson said that the bank was well-positioned to manage short term deposit activity.

Investors were not optimistic about JPMorgan's prospects despite receiving a $70 Billion loan from JPMorgan one week ago and a $30 Billion lifeline from a consortium bank on Thursday.

On Monday, other regional bank stocks rose following European peers on the news that UBS had taken over Credit Suisse, its troubled rival, in a coordinated takeover.

Thursday's deal was a large cash deposit, which would allow First Republic customers to withdraw their money.

It doesn't solve the profitability problem

Patricia McCoy, a Boston College law professor, believes that the deposit may have helped to end the bank run temporarily.

She said that 'But it does not solve this profitability problem' in an interview on Friday. Its expenses could be greater than its revenues.

According to the Journal, people familiar with the matter said that the latest talks are "fluid" and "fast-moving". However, it could be that the banks convert some of the $30 Billion in deposits into capital infusions.

Moody's downgraded First Republic's credit rating from good to junk status on Friday night, and S&P did the same Sunday. Moody's highlighted a decline in the bank's financial profile as well as'significant challenges' resulting from its dependence on short-term, higher-cost financing while customers pull their cash out.

McCoy, who was instrumental in establishing the Consumer Financial Protection Bureau, stated that Thursday's $30 billion infusion did not increase First Republic Bank’s capital. This is the safety cushion funds banks use to absorb losses.

McCoy stated that there is 'every reason' to believe that capital has shrunk due to First Republic's heavy paper losses in its bond portfolio.