First Republic stock rout deepens after report on likely FDIC receivership
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 per cent of the stock’s value this week.
If the San Francisco-based lender falls into receivership, it would be the third US bank to collapse since March. First Republic said earlier this week its deposits had slumped by more than U$100 billion in the first quarter.
The stock lost more than half of its value on Friday (Apr 28) and touched a record low of US$2.99. Trading in the bank’s shares was halted multiple times.
At its lowest, the bank had a market capitalization of nearly US$557 million, a far cry from its peak valuation of more than US$40 billion 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 US$63 million to US$376 million over the past 30 days, according to Ihor Dusaniwsky, managing director of Predictive Analytics at S3.
A Reuters report of a government-brokered rescue deal for First Republic had pushed its shares up by as much as 6.6 per cent earlier in the session.
According to the report, the FDIC, the Treasury Department 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.”