First Republic stock rout worsens after receivership report

If the San Francisco-based lender falls into receivership, it would be the third US bank to collapse since March.

First Republic Bank branch
First Republic Bank's market value has plunged from a peak of $40bn to $557m [File: Mike Segar/Reuters]

First Republic Bank shares plunged after a CNBC report that the lender was likely headed for receivership under the US Federal Deposit Insurance Corporation (FDIC), worsening a rout that has wiped out 75 percent of the stock’s value this week.

If the San Francisco-based lender falls into receivership, it would be the third United States bank to collapse since March. First Republic said earlier this week its deposits had slumped by more than $100bn in the first quarter.

The stock lost more than half of its value on Friday and touched a record low of $2.99. Trading in the bank’s shares was halted multiple times.

At its lowest, the bank had a market capitalisation of nearly $557m, a far cry from its peak valuation of more than $40bn in November 2021.

Short sellers – investors who set up bearish trades with the aim of booking profits from falling stock prices – have raised their bets against the bank by $63m to $376m over the past 30 days, according to Ihor Dusaniwsky, managing director at analytics firm S3 Partners.

A Reuters report of a government-brokered rescue deal for First Republic had pushed its shares up by as much as 6.6 percent earlier in the session.

According to the report, the FDIC, the Treasury and the Federal Reserve are among the government bodies that have started to orchestrate meetings with financial companies about a lifeline for the bank.

The government’s involvement was helping bring more parties, including banks and private-equity firms, to the negotiating table, the report said.

“The potential worst-case scenario stemming from the collapse of Silicon Valley Bank appears to have been averted,” said Mark Haefele, chief investment officer at UBS Global Wealth Management, in a note.

“But the problems at First Republic are a reminder that further problems remain possible.”

Source: Reuters