First Republic Bank (NYSE: FRC) shares cratered this past week as investors feared the worst for the financial institution. On Friday, shares lost around 43% only to lose another 33% in after-hours trading.
According to multiple reports, the Federal Deposit Insurance Corporating (FDIC) is accepting bids on the bank as a bailout is in the works for the bank. Mentioned acquirers include JP Morgan, Bank of America, PNC, and others. The deal may be finalized this weekend.
FRB is part of the ongoing bank crisis that has scraped off the veneer of safety in the highly regulated sector. As interest rates rose at an unprecedented rate as the Fed battled inflation that ended up not being transitory, some banks failed to adjust the balance sheet – holding on to debt that tanked in value – leaving a gaping hole.
Last week, the US Federal Reserve published a report that highlighted the failure of bank management to address what should have been an obvious issue – as well as regulators who were aware of the problem but did little to fix the time bomb.
FRB, if it fails, will be one of the largest in US history. At the same time, the failure puts pressure on the concern that fractional bank models are not so great.
Last week, FRB reported Q1 2023 earnings which were poor.
Year-over-year revenues were down 13.45 to $1.2 billion, and net income was down 32.9% to $269 million. earnings per share were reported at $1.23, down 38.5%. Deposits were down over 1/3 at $104.5 billion (down 35.5%).
FRB said that in response to the unprecedented deposit outflows, it had accessed additional liquidity from the Federal Reserve Bank, the Federal Home Loan Bank, and JP Morgan Chase. At the same time, the bank’s dividend was eliminated.