First Republic Bank’s FRC fate appears to have been sealed, and rumors suggest the regional bank would be taken over by the government following which there would be potential suitors for its assets.
What Happened: First Republic stock went about a freefall on Friday, dropping 43.3% to $3.51 in regular trading and an incremental 33.62% in after-hours, according to Benzinga Pro data.
The drop was precipitated by reports that the bank could be placed under Federal Deposit Insurance Corporation receivership, suggesting a government takeover of the bank.
A Wall Street Journal report said JPMorgan Chase & Co., Inc. JPM and regional banking peer PNC Financial Services Group, Inc. PNC could be bidding for the First Republic following the government seizure.
The seizure and sale could be announced as early as this weekend, the report said.
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Why It’s Important: The development could come as a setback even as the banking system was recovering from the recent collapses of the Silicon Valley Bank and the Signature Bank. Both these banks were taken over by the government and SVB was later sold to First Citizens Bancshares, Inc. FCNCA.
The underlying issue behind the collapses is the asset maturity mismatch that left the banks, which invested in longer-dated Treasuries, with huge book losses. When the issue came to light, it triggered bank runs, causing a flight of deposits away from the regional banks.
San Francisco-based First Republic came into the spotlight when it announced in mid-March measures to strengthen and diversify liquidity. This was when Street started smelling some trouble at the lender. In less than a week, the bank said 11 banks led by JPMorgan would collectively contribute $30 billion in uninsured deposits.
Subsequently, First Republic announced the suspension of dividends on all the series of preferred shares.
Then came the bank’s first-quarter results earlier this week, with the main metrics exceeding expectations. The bank also said 70% of its deposits, except that received from the banking consortium, at the end of March were insured. But there was a red flag in the earnings report. The company saw a 40.8% plunge in deposits to $104.5 billion.