First Republic Bank (FRC) collapse is underway as FDIC seeks rescue

on Apr 29, 2023
  • First Republic Bank is considering the banks that will buy First Republic Bank.
  • The FRC stock price has crashed by more than 90% in the past few months.
  • Its equity has become almost worthless as its bad debts jump.

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First Republic Bank’s (NYSE: FRC) collapse is imminent as the FDIC works to save the troubled back. On Friday, the FRC stock price ended the week at $3.51, which was lower than its all-time high of $225. Its market cap crashed to just $638 million, meaning that investors believe that its equity is worthless.

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First Republic Bank rescue

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Talks are continuing in the US to try to save the company and its depositors. According to Bloomberg, the FDIC has turned to some of the biggest banks to try and buy the company. Some of the banks it has approached are JP Morgan, Bank of America, US Bancorp, and PNC Financial.

These banks were first asked to show indications of interest, potential price, and the estimated cost to the agency. It then narrowed the list to a few banks as it seeks to conclude the transaction before the market opens on Monday.

Banks are a bit sceptical about taking over First Republic, a company that lost over $100 billion in deposits in the first-quarter. These losses likely increased after the company’s shares collapsed during the week.

Additional concerns are the potential losses after the merger. First Republic’s balance sheet has billions of dollars in unrealized losses that the acquirer will need to cover.

Banks like JP Morgan have the additional issues since regulations bar large American banks from continuing growing. As such, any bid will need guarantees that these regulations will be waived. 

Why FDIC wants a buyer

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The FDIC hopes that FRC will find a buyer considering that its stock price has plunged, making it an attractive target. Also, by moving into receivership, it means that the FDIC will avoid paying billions of dollars to depositors. 

None of all these options are good for First Republic Bank shareholders who have seen their equity crash by over 90% in the past few months. As I wrote here, drawing from the lessons of Credit Suisse and SVB, catching a falling knife is dangerous when it comes to troubled banks. 

Other regional banks are also in trouble as more people move their cash to the big banks. Also, there are concerns about the safety of the commercial real estate sector. Some of the biggest regional banks at risk are Valley National Bancorp, PacWest Bancorp, Pacific Premier Bancorp, and Independent Bank among others.

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