Shares of First Republic were in freefall Monday, surprising Wall Street analysts who saw it as one of the best brands among midsize banks. The stock lost 61.8% on the day and fell more than 75% at one point as investors tried to figure out how the collapse of Silicon Valley Bank on Friday could ripple through the financial system. The decline of First Republic suggests that many fear that it too may fail. FRC 1D mountain First Republic’s stock fell more than 75% at one point on Monday. The dramatic slide, however, puzzled many Wall Street analysts, who still see First Republic as a strong bank even after SVB’s demise. JPMorgan’s Steven Alexopoulos called the move a “dramatic overreaction” and maintained his overweight rating on the stock. “While we understand (and are not surprised) that the collapse of Silicon Valley Bank triggered a wave of selling across the banking universe, we were very surprised to see FRC stock trading more down than our typical bank. Indeed, during periods of panic selling FRC stock typically outperforms the company that is typically viewed as a port in the storm,” Alexopoulos said. Even the analysts who were more skeptical of the First Republic did not predict disaster. Downgrades from Raymond James and Wolfe Research both cited lower earnings caused by a smaller deposit base, while Bank of America said it removed its rating entirely because the stock appeared to be free of fundamentals. Here’s a look at some of the press points for First Republic and how it compares to SVB. Customer mix One problem for First Republic is that it is seen as friendly to venture capital and startup companies. This was the primary business for SVB. But First Republic said last week that no industry category accounts for more than 9% of its deposits, and the technology industry accounted for just 4%. While venture capital-backed and startup companies can come from any industry, JPMorgan said this should show the bank is well diversified. “Look no further than the latest full-year results from each bank, where SVB’s deposits fell by $16bn (or -9%) in 2022, while First Republic’s deposits rose by $20bn (or +13%) in 2022,” Alexopoulos said. And while First Republic falls in the bucket of regional banks, its customer base is spread out geographically, according to Atlantic analyst John Heagerty. “We note that the bank has increased its geographic spread over the past decade, with lending exposure to the greater San Francisco area now down to 34% (from 56% two decades ago). The bank’s loan portfolio is also low-risk and well-diversified with type,” Heagerty said in a note to clients, reiterating his overweight rating on the stock. On the other hand, the bank has relatively few small retail deposit accounts compared to many of its peers, making it more vulnerable to deposit flight. Deposits and liquidity Another problem that helped bring SVB down was an unusually high percentage of uninsured deposits — close to 90% of its total deposits at the end of December. First Republic also has this problem, but to a lesser extent. First Republic’s filings indicate the bank had about $120 billion of its deposits uninsured at the end of December, or about 68% of its total deposit base. The bank said in a filing Friday that its average deposit account size was under $200,000 for consumer accounts and under $500,000 for businesses, meaning many of the accounts will fall below the $250,000 threshold for insurance by the FDIC. First Republic said Sunday night it had $70 billion in cash after securing additional financing from JPMorgan Chase and the Federal Reserve over the weekend. In theory, the bank could also access additional capital through the new financing facility created by the Fed. Under normal circumstances, $70 billion would be more than enough to cover even abnormally large withdrawals. But after SVB customers withdrew more than $40 billion on Thursday, the fact that First Republic may not have liquidity available for all of its deposits could be a source of concern. “While uninsured deposits are not 100% covered by immediate liquidity, we believe the First Republic franchise remains healthy,” Heagerty said. First Republic’s deposit mix has likely changed in recent days, although the company has not released updated numbers. CEO Jim Herbert told CNBC’s Jim Cramer that the bank did not see many of its depositors leave, but declined to put a specific number on the payouts. First Republic did not immediately respond to a request for additional comment Monday. Balance Sheet Breakdown First Republic’s asset mix is also very different from SVB’s, although the implications for how that would affect the bank’s ability to handle a rush of withdrawals are less clear. First, First Republic holds the majority of its assets as loans rather than securities. Per As of December 31, First Republic had $3.3 billion in available-for-sale securities, $28.3 billion in held-to-maturity securities and more than $166 billion in loans. SVB, on the other hand, had more than $90 billion in securities held to maturity at the end of December alone. Having more loans will not necessarily be enough to keep a bank afloat. Signature Bank, which was seized by regulators on Sunday, also leaned more heavily on loans than SVB did. In addition, the new funding facility from the Fed will let banks swap certain securities for cash, but likely not First Republic’s loan book. In theory, First Republic could enter into agreements with other banks to pledge some of its loans in exchange for cash. Another consideration is that First Republic’s loans are largely residential properties. While these loans are likely considered safe due to the bank’s high-end customer base, their value could be hurt by the recent rise in interest rates. — CNBC’s Michael Bloom contributed to this report.
First Republic’s falling stock surprises some. Here’s how it compares to SVB