Key Takeaways:
- First Republic Bank is on the brink of collapse, as FRC stock has fallen 95% since March.
- The disastrous quarterly revenue report spurred clients to withdraw.
- Can a bailout work for FRB?
YEREVAN (CoinChapter.com) – First Republic Bank (FRB) saw its stock (NYSE: FRC) drop 95% since the Silicon Valley Bank collapse on March 8.
The stock price briefly stabilized in late March, flatlining at approximately $13 throughout April after 11 big banks gave it $30 billion in deposits.
However, FRC lost another 67% of its valuation week-to-date, reaching $5.6 on April 26, as regulators, big banks, and potential bidders for its assets all held back from stepping in to help the San Francisco-based lender.
First Republic Bank Q1 earnings report further spooked investors
In detail, the latest week-to-date drop came after the disastrous quarterly report on April 24.
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The latter claimed depositors withdrew over $100 billion since the SVB crash. Neal Holland, the chief financial officer of FRB, said the bank is working to “restructure the balance sheet,” but the efforts might be futile, given the additional plunge in stock price.
With the closure of several banks in March, we experienced unprecedented deposit outflows…We moved swiftly and leveraged our high-quality loan and securities portfolios to secure additional liquidity. We are working to restructure our balance sheet and reduce our expenses and short-term borrowings.
commented Holland.
In detail, the report showed that the long-term borrowings in Q1 2023 stood at $26 billion, while the short-term borrowings topped at a record $80.3 billion.
Is a bailout possible?
According to sources close to FRB, the banks were unwilling to take losses and buy out the failing lender unless government officials “either twisted their arms or offered inducements.”
The sources claim that the First Republic’s executives initially sought an “open-bank” solution, an asset sale that allows it to keep operating. However, some believe a “closed-bank” deal is more appropriate, a transfer of assets after The Federal Deposit Insurance Corporation (FDIC) takes over the lender.
Generally, if a bank fails, the government — the FDIC — will come in and take it over and pay out all depositors (up to $250,000 each) with government money. But the money does not come from a government printing press but from the FDIC’s separate insurance fund, which, in turn, comes from other banks.
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CNBC’s Hugh Son pointed out that potential bidders in the private sector might still be interested. “If you let Bank X fail, that will cost the FDIC money, and the FDIC will just send you a bill for that money, so you might as well bail out Bank X yourself first,” noted the expert.
Conversely, Don Bilson at Gordon Haskett asserted that FRB is “toast” in a note on April 26.
said the expert.“It’s becoming clearer each day that First Republic is “toast.” The only question that really needs to be answered is whether the FDIC moves in before the weekend or during the weekend, which is when it usually does its thing.”
