FRC - First Republic Bank stock slumps after dividend pause analysts assess options

2023-03-17 08:32:58 ET

First Republic Bank ( NYSE: FRC ) stock slid 20% in Friday premarket trading after the troubled lender suspended its dividend even after the U.S.'s largest banks agreed to deposit a total of $30B into the troubled lender.

Wedbush analyst David Chiaverini downgraded First Republic ( FRC ) to Neutral from Outperform, as he sees a sale of the company as the most likely outcome, with little if any value remaining for common stockholders.

"We estimate that the combined actions taken on the liability side of the balance sheet over the last week to shore up liquidity could increase interest expense materially, and puts the bank in a very tough position from a profitability standpoint, thus making a sale the best option to avoid receivership, in our view," the analyst wrote in a note to clients.

In the case of a sale, First Republic's ( FRC ) assets would have to be marked to fair value. As a result, "we believe a distressed M&A sale could result in minimal, if any, residual value to common equity holders owing to FRC's significant negative tangible book value after taking into account fair value marks on its loans and securities," he said.

Under Wedbush's base case scenario, the company would undergo a take-under and/or receivership scenario that may leave no residuaal alue for shareholders. In a second scenario, FRC would cut costs significantly, including workforce reductions to achief profitability as a stand-alone company.

Chiaverini slashed his price target on the stock to $5 from $140. First Republic ( FRC ) stock traded at ~$27.60 at 8:27 AM ET.

In a note issued on Thursday, J.P. Morgan's Gigi Sparling said the deposit infusion "wouldn't do much to alleviate the challenged structural position of the First Republic balance sheet, with NIM compression likely to be exacerbated and earnings remaining under compression until more meaningful action is taken to reposition the balance sheet."

Barclays analyst Jason Goldberg said the $30B of uninsured deposits from the big U.S. banks provides a "vote of confidence for struggling First Republic ( FRC ), significantly reducing the probablity of failure."

Insured deposits remained stable from close of business March 8 to close of business March 15, the analyst said. But the company did not provide an update on uninsured deposits, which at Dec. 31, 2022 were $119B, or two-thirds of its total deposits of $176B.

Meanwhile, SA contributor Yannick Frey gives four reasons to buy FRC stock.

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