First Republic: Is Another Bank Collapse Coming?
Key takeaways
- The fourth US bank of the year could be on its way to collapse
- First Republic’s share price has dropped 97% in a year
- Its market cap has plummeted from $40 billion in November 2021 to $557 million
The banking crisis seems never-ending, with three regional casualties already this year. First Republic is the next potential victim. Let’s see why it’s happening and if there’s any hope for recovery.
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A little First Republic backstory
First Republic, a bank tailored to high-net-worth people, is potentially the next victim of the ongoing banking crisis. Ironically, focusing on wealthy customers played into its downfall.
68% of First Republic deposits were uninsured, exceeding the Federal Deposit Insurance Corporation (FDIC) limit of $250,000. Many of these account holders took their money to safer havens amid concerns that First Republic could collapse.
With Silicon Valley Bank (SVB), Signature Bank, and Silvergate imploding this year, it’s no wonder investors and account holders are being cautious.
In Q4, First Republic saw its deposits drop from $176.43 billion to $104.47 billion, even with a $30 billion injection from major banks like JP Morgan Chase.
While deposit activity stabilized into April, the FDIC is looking very likely to place First Republic under receivership. This government move makes sense after the Fed received criticism for not acting fast enough with the other collapses this year.
What’s going on with FRC?
You know things have gotten pretty wild with a stock when trading is halted several times during a session. That happened on Friday when FRC dropped another 43%. That’s a total drop of 97% this year.
Losing $100 billion in deposits in just three months is bound to send shockwaves through a stock, which is precisely what we’re seeing: First Republic was valued at $40 billion in November 2021. It now has a market cap of just $557 million.
What’s next for First Republic?
On Friday night, the Wall Street Journal reported that the FDIC asked institutions to bid for First Republic.
According to the Financial Times, JPMorgan Chase, PNC, and Citizens put offers in on Sunday to buy all or part of First Republic.
These offers rely on FDIC putting First Republic into receivership, though. This ensures FDIC’s insurance fund covers at least some of the losses from the deal.
Let’s see whether this is enough to save the taxpayers from more banking burdens.
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