First Republic Bank stock continued diving after hours on late reports from Reuters that the FDIC is preparing to place the troubled San Francisco-based lender into receivership immediately, according to a person familiar with the matter. The news confirmed earlier reports from CNBC that First Republic would likely be taken into government control.
Meanwhile, the U.S. regulators provided updates on Signature Bank and SVB. Bank stocks generally were rallying.
First Republic Placed Into Receivership
FRC stock unraveled another 47% after market close Friday on Reuters reports the FDIC will seize the bank. The regulator decided First Republic's position and there's no longer time to pursue a private rescue, according to an anonymous person familiar with the matter.
First Republic Bank stock dived 43% Friday, hitting yet another record low. CNBC reported Friday morning that the troubled bank is most likely headed for FDIC receivership, citing sources close to the matter. At the time, those close to the matter still had hope for an alternate solution. Sources say they are "engaged in discussions with multiple parties about our strategic options while continuing to serve our clients."
First Republic Bank Shockwaves
Heavily-battered First Republic Bank sent shock waves through the financial sector again this week after announcing deposits plummeted by $72 billion during the quarter to $104.5 billion as of March 31, even with the $30 billion injection from the nation's biggest banks including JPMorgan Chase.
FRC shares halved Tuesday after reports the bank is trying to sell $50 billion to $100 billion in long-term assets as it tries to shore up its balance sheet to avoid being seized by the FDIC, Bloomberg reported. FRC stock unraveled further Wednesday as additional reports of First Republic rescue attempts poured in, prompting multiple trading halts for volatility reasons.
First Republic has pleaded with its previous rescuers to buy bonds at above-market rates for billions in losses, or face $30 billion in FDIC fees if the bank fails, CNBC reported. And First Republic can't afford to sell the bonds at market value. If they find volunteers to step up, First Republic advisors have buyers lined up to purchase newly-issued shares.
U.S. regulators would prefer a private rescue before stepping in, according to Bloomberg, as they don't see First Republic Bank posing a systemic risk. They're also weighing the prospect of downgrading First Republic's CAMELS rating, their private assessment of the bank, which could potentially curb borrowing from the Fed discount window and emergency facility launched last month, Bloomberg reported Wednesday.
FRC stock tanked more than 97% so far this year during the bank panic.
Other Bank Stocks Unfazed
Other bank stocks were unfazed by the growing likelihood of FDIC receivership for First Republic, which was an extreme outlier in terms of deposit flight. An FDIC takeover that protects depositors could head off a wider contagion.
The SPDR S&P Regional Banking ETF rose 1.8% Friday. FRC stock is among the many KRE components.
The Financial Select SPDR ETF, dominated by banking giants such as JPMorgan, climbed 1.2%, nearly reclaiming its 50-day line. JPM stock edged higher, trading above its 50-day.
Fed Reviews SVB Failure
Federal Reserve Vice Chair for Supervision Michael Barr released the review of failed Silicon Valley Bank early Friday. Barr said SVB's failed "because of textbook case of mismanagement by the bank." He noted senior leadership failed to manage basic interest rates and liquidity risks while the board of directors failed to maintain oversight and accountability.
SVB was an outlier due to its concentrated business model, high interest rate risk and reliance on uninsured deposits. Barr noted social media helped fuel fears and may have increased the speed of the bank run.
But it demonstrated the Fed's weaknesses as well.
Fed supervisors failed to take forceful enough action and regulatory standards for SVB were too low, Barr stated. The central bank also failed to contemplate the contagion or systemic risk in its tailoring framework.
"We need to develop a culture that empowers supervisors to act in the face of uncertainty," Barr wrote. "In the case of SVB, supervisors delayed action to gather more evidence even as weaknesses were clear and growing. This meant that supervisors did not force SVB to fix its problems, even as those problems worsened."
Barr said Fed must strengthen its framework for supervision and regulation. Some proposals included multiple scenarios for stress-test modeling and introducing more continuity in compliance standards when bank portfolios grow in size.
"As risk in the financial system continue to evolve, we need to continuously evaluate our supervisory and regulatory framework and be humble about our ability to assess and identify new and emerging risks," he wrote.
Barr reiterated officials' claims that the banking system is sound and resilient, with strong capital and liquidity.
You can follow Harrison Miller for more stock news and updates on Twitter @IBD_Harrison
