First Republic Bank’s Shares Plummet Amid Deposits Decline and Uncertainty Over Its Future

The shares of First Republic, a US regional bank, suffered a significant drop on Friday due to increasing speculation about its future after it reported a substantial decrease in deposits. The bank’s shares fell more than 50% earlier in the day, eventually finishing at $3.51, a decline of 43% after several trading halts due to volatility. First Republic’s market capitalization has fallen from over $40 billion in November 2021 to around $654 million now. On Monday, the bank announced that it had lost more than $100 billion in deposits in the first quarter, which led to the latest decline in its stock price. The bank claims that its deposit situation has stabilized since receiving $30 billion in funds from a group of 11 US private banks in mid-March, but rumors about potential rescue packages involving other banks have not materialized. The most likely scenarios for the bank’s future involve its sale following a receivership by the Federal Deposit Insurance Corporation (FDIC) or the sale of its assets to other financial players. However, either scenario would require overcoming the negative value of First Republic’s loans, which would result in a loss in value for a prospective buyer. The federal government only guarantees deposits up to $250,000, but with emergency actions in March, the FDIC and Federal Reserve decided to guarantee deposits above this amount to prevent further panic among depositors. If uninsured depositors are not protected in the event of bank failures in the future, it could be disruptive. Morningstar analyst Eric Compton has stated that there is a material probability that First Republic will not survive, and even if it does, the dilution of existing shareholders that would be required to resize the balance sheet would reduce current shareholders’ value to close to $0.