FRC - Why did First Republic Bank stock slump today? Fear from SVB Financial failure

2023-03-10 16:11:54 ET

First Republic Bank ( NYSE: FRC ) shares fell as much as 52% in Friday regular session trading after SVB Financial ( SIVB ) failed as a result of client withdrawals, higher funding costs, and the drop in venture capital activity. By the end of the session FRC shares' decline had narrowed to a 15% drop .

SVB Financial ( SIVB ), the parent of Silicon Valley Bank, has a large base of venture capital-backed startups. With venture capital drying up, its account holders would draw down their accounts to keep operating. Then some prominent venture capital investors advised SVB customers to pull their funds out of the bank.

First Republic ( FRC ), a regional bank, is based in San Francisco, in the Silicon Valley region. SVB is based in nearby Santa Clara, California.

To be sure, many bank stock swooned today over concern about the banking sector. First Republic ( FRC ) dropped more than most, partly due to its geographical proximity to Silicon Valley.

UBS analyst Erika Najarian defended First Republic ( FRC ) pointing out that its average balance on consumer deposits is less than $200K , with its business deposit average account size is less than $500K. By contrast, SVB's average deposit balance is $1.1M and 92% of the bank's deposit accounts have balances over $250K.

"FRC has much more granularity so should be less vulnerable to swings in investor confidence," the analyst wrote in a note to clients. In addition, First Republic's ( FRC ) business deposits are well diversified with no single sector over 9%, she said. Technology-related deposits only account for 4%.

Earlier, SVB Financial's ( SIVB ) Silicon Valley Bank fails as FDIC takes over.

Also see: Wall Street analysts call bank stock slide overreaction to "idiosyncratic" events

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