- First Republic Bank shares plunged 43% on Friday after CNBC reported the lender looks headed toward a government takeover.
- The lender that lost $100 billion in deposits in Q1 will likely be put into FDIC receivership, the report said.
- First Republic’s market cap was shoved to roughly $65 million, sharply lower than its peak of $39 billion.
First Republic Bank stock wiped off more than 40% of its value by the end of Friday’s selloff, veering sharply lower following a CNBC report the struggling lender was likely headed toward a takeover by the Federal Deposit Insurance Corporation.
Separately, Reuters reported that the FDIC, the Treasury Department and Federal Reserve were working on putting together urgent talks with other banks to come up with a rescue plan for First Republic.
Trading was halted numerous times for volatility on Friday. The shares finished down by 43% at a record-low close of $3.51. The stock during the session had fallen by more than 50%.
The company’s market capitalization has been hammered down to about $65 million, severely lower than its peak of $39 billion in November 2021.
CNBC said sources said the most likely route for First Republic was for the FDIC to take it into receivership. Such action would mark the third bank seizure by the FDIC since March when it took over the collapsed lenders Silicon Valley Bank and Signature Bank. The SVB and SBNY takeovers were the first in the US since the global financial crisis.
Shares of First Republic – part of the S&P 500 Index – have plunged 97% this year in the wake of the banking industry shakeup spurred by SVB and SBNY shutdowns.
First Republic Bank shares had climbed sharply in pre-market trading after the Financial Times reported the company, centered on wealthy clients, was working on a plan to prevent being seized by the FDIC. The agency last month took over SVB and SBNY to prevent a broader run on deposits at regional banks sparked by SVB’s massive financial troubles.
First Republic lost $100 billion in deposits in the first quarter. The bank’s advisors were working on a private-sector plan to stave off the potential of a takeover by the FDIC, the FT reported late Thursday.
Three unnamed sources told the British publication there had been a shift in tone among the bank’s advisors compared with Tuesday and Wednesday when the bank’s stock slid 65% and fears about an FDIC takeover grew.
The advisors were asking banks to purchase bonds from First Republic at above-market rates, allowing the company to shrink its losses. But sources told the FT that such a move may not be sufficient to stabilize First Republic on its own and that it was still possible the FDIC would seize the bank.
JPMorgan was involved in the talks but other large institutions may have been party to another rescue plan for First Republic, the FT reported, adding that JPMorgan has acted as First Republic’s banker.
The advisors have been eager to win approval from Biden administration officials for a plan that can keep the bank running.
The FT report said the White House, US Treasury and FDIC declined to comment. JPMorgan and Lazard, which is also working with First Republic, also declined FT’s comment requests.
CNBC on Wednesday reported that First Republic’s advisors were pitching the bond-buying idea to larger rivals. They were making the case that if they didn’t purchase the bonds that they may be on the hook for FDIC fees of about $30 billion should First Republic fail.
JPMorgan along with other banks chipped in last month for a $30 billion deposit infusion into First Republic.
