By Liam Cosgrove
First Republic’s shares dropped to all-time lows on April 28 following reports that the bank is entertaining the possibility of receivership by the Federal Deposit Insurance Corporation (FDIC). The bank’s stock fell by more than 50 percent and trading was halted multiple times throughout the day.
CNBC reported that multiple banks were approached by the FDIC and asked to offer bids on First Republic, though many involved remain optimistic that it will not come to receivership.
“We are engaged in discussions with multiple parties about our strategic options while continuing to serve our clients,” First Republic told the financial news outlet.
The struggling bank’s stock is down a whopping 97 percent on the year, priced at over $153 per share last April and hitting as low as $3.05 on April 28. Whether regulators can find a buyer on the open market could impact broader sovereign bond valuations in the United States.
“Purchasing the assets in a receivership situation gives buyers more leeway in terms of picking and choosing valuable assets, including loans and mortgages, while an ‘open market’ solution likely forces the buyer to pay above-market rates for the hundreds of millions in Treasury bonds sitting on First Republic’s balance sheet,” Martin Baccardax wrote in The Street. Such analysis would suggest it is in the interest of U.S. regulators to avoid receivership for the failing bank.
Federal Reserve and Department of Treasury officials are reportedly working behind the scenes to set up a financial lifeline for First Republic if the situation becomes dire.
Last month, top U.S. banks injected $30 billion into First Republic to stave off looming financial problems. However, the bank saw over $100 billion in deposits leave their vaults in the period that followed the collapse of Silicon Valley Bank (SVB) on March 10.
Financial experts warned that fleeing depositors was a death blow to the bank.
“No bank on earth can survive if its customers pull their money out of the bank—especially if it happens all at once,” said Adam Sarhan, CEO of 50 Park Investments. “If First Republic fails or is bailed out, that will likely cause more downward pressure on the already beaten-down financial sector.”
First Republic plans to dump unprofitable assets, such as low-yield mortgages for affluent customers. In addition, layoffs of 20 to 25 percent of its workforce are in the works. This amounts to approximately 7,200 employees.
The market panic has yet to be quelled by such moves. First Republic’s share price is $3.88 at the time of writing.