The stocks of the First Republic Bank saw a massive decline of up to 49% as depositors suddenly withdrew around $100 billion from the bank. This sudden massive withdrawal came as a result of the bank crisis that happened over a few months.
Depositories were concerned about the stability of the First Republic Bank following the collapse of the Silicon Valley Bank and the Signature Bank and speculated that the bank would be the third one to be affected by the crisis.
The fall in the stocks of the bank has raised serious questions about the future of the bank. According to the statement made by the Autonomous Research analyst David Smith, the failure of the bank is certainly a risk. He stated that the deposit for the quarter was much worse than the expected number.
Also, as per a report published by Bloomberg, the bank is currently planning to divest $50 billion to $100 billion of long-dated securities and mortgages so that they could make an eventual capital raise much easier.
The stock of the bank is currently 93% down for the year. The problems at the First Republican Bank have also affected the stocks of some of the other banks, which includes some of the regional rivals of the First Republic Bank.
After the sudden decrease in the stock, the bank released a statement regarding the current situation of the bank. In the statement, the authorities of the bank stated that they were able to put a stop to the bleeding, which means the massive withdrawal, only after the help of a group of other large banks.
These banks stepped in to save the First Republic Bank by making an uninsured deposit of around $30 billion. As for the investors of the bank, they are still confused about the future of the bank.
The question of whether the bank will remain an independent form or as an acquisition target is yet to be found. Also, it should not be forgotten that if the bank is to be purchased or acquired by any other company, the purchase will result in a sudden massive loss to the buyer.
As these speculations remain, the bank also revealed some of its future plans for survival amidst this sudden crisis. The bank intends to dispose of its unprofitable assets and the low-interest mortgages it issued to affluent clients.
As another means to cut off their additional expenditure now, the bank also plans to cut off a quarter of their workforce. By the end of the year 2022, the total workforce of the bank was estimated to be around 7,200.
In light of the developments at the bank, Citi analyst Arren Cyganovich released a note in which he asked the clients to sell their shares as the outlook appears ulcer at the moment.
He explained that there was a large level of uncertainty in the outcomes and future of the bank and as the loss for the bank is expected to last over the year into the next one, it is better to sell the shares.
The collapse of two of the major banks – the Silicon Valley Bank and the Signature Bank has brought a huge impact on the First Republic Bank as well. The bank suffered much in early March as its depositories began worrying and doubting the future of the bank.
The depositors believed that the First Republic Bank would be the third bank to follow the fate of the Silicon Valley Bank and the Signature Bank. They were convinced that the bank would not survive as an independent entity for long. The price of the stock of the bank also noted a massive fall as it fell around 49% at $8.10 a share.
The days of the First Republic Bank before the collapse of the Silicon Valley Bank were some of their golden days and most of the industries were envious of the franchise due to its valuable customers and also their success.
The major clients of the bank were rich and powerful and they did not default on any of their loans. It is said that the major income source of the bank was from their low-cost loans to the rich and their customer list included names like the CEO of Meta Platforms Mark Zuckerberg.
The success and reputation of the bank were severely affected when its depositors came to know the fact that a major share of the deposits made by the First Republican Bank like those made in Silicon Valley Bank and Signature Bank were mostly uninsured, which is above the $250,000 limit under the restrictions imposed by the FDIC.
This means that if the First Republic Bank faces any kind of distress that leads to the failure of the bank, then the depositors will have to face the risk of not getting any of their investment money back at all.