First Republic Bank stock circling the drain as expectations rise for receivership
Zachary Halaschak
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First Republic Bank’s stock has plunged to new lows amid reports that the federal government is eyeing taking the flailing firm into receivership.
The troubled regional bank has faced extreme scrutiny since the collapse of Silicon Valley Bank and Signature Bank back in March. Investors appear to be expecting that First Republic will fold, and its stock has bottomed out amid the turmoil.
SVB COLLAPSE: FED SAYS IT FAILED TO ‘TAKE FORCEFUL ENOUGH ACTION’
First Republic was down a whopping 40% just on Friday and was trading around $3.75 per share — an astonishing departure from the $143 level it was trading at in February. In the past six months, the company has lost more than 95% of its value.
While there was some hope about the future of First Republic earlier Friday after Reuters reported that U.S. officials at the Federal Deposit Insurance Corporation, the Treasury Department, and the Federal Reserve have been convening meetings with other banks and financial firms about a rescue plan, those hopes have dimmed.
It appears that the most likely outcome for First Republic is that the FDIC will take it into receivership, CNBC reported on Friday. The FDIC is reportedly asking other banks about potential bids should it seize the firm.
On Friday, First Republic said it was “engaged in discussions with multiple parties about our strategic options while continuing to serve our clients.”
First Republic, which works with wealthy customers and their businesses, has been the most distressed regional bank since SVB and Signature came crashing down.
Friday’s upheaval at First Republic coincides with the seven-week anniversary of the failure of SVB, which was the biggest bank to collapse since 2008. It also coincided with Fed’s release of a much-anticipated report about the central bank’s investigation into the facts and failures behind SVB’s collapse.
The 118-page report is the culmination of an investigation spearheaded by Michael Barr, the Fed’s vice chairman for supervision. Barr said in the postmortem that the downfall of SVB represented failure across the board, at the bank and at the Fed.
“Silicon Valley Bank (SVB) failed because of a textbook case of mismanagement by the bank. Its senior leadership failed to manage basic interest rate and liquidity risk,” Barr said. “Its board of directors failed to oversee senior leadership and hold them accountable. And Federal Reserve supervisors failed to take forceful enough action, as detailed in the report.”
The report found that SVB executives failed to manage their risks at the bank. Fed supervisors didn’t properly identify vulnerabilities amid SVB’s growing size and complexity, and when vulnerabilities were identified, officials didn’t take enough steps to make sure SVB mitigated those problems efficiently.
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Following the report’s Friday release, Sen. Tim Scott (R-SC), the ranking member of the Senate Banking Committee, said the collapse represented a three-part failure. He blamed bank management, federal regulators, and the Biden administration for allowing inflation (and thus interest rates) to get so high under its stewardship. Scott also vowed more hearings on the matter.
“We need accountability across the board, not only for the American taxpayer but also for the continued health of our financial system,” he said. “This Committee’s role is one of oversight, and I look forward to reviewing these reports in full and bringing these regulators back before the Committee to answer for their findings.”