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Is the FRC Done?


Is the FRC Done?

In this comprehensive post from Neeraj Monga, the insolvency of the First Republic Bank is explored.

First Republic Bank (“FRC”, or the “Bank), with a current market capitalization of $4.2B, is still standing with conflicting opinions as to its viability. Although The Federal Reserve (“The Fed”), the U.S. Treasury, and a consortium of the largest U.S. banks agreed to provide deposit support of $30B for 120 days to FRC, the stock closed 32.8% lower for the day at $23.03. It declined an additional 15% after-market hours[1]. Last month, February 07, 2023, the Bank issued 2.875 million shares of common stock at approximately $143.69/share for net proceeds of $397M[2].

We do not believe that the so-called deposit lifeline changes the underlying economic reality of the Bank. Although FRC reported book equity of $75.38/share for 2022, we estimate it is effectively insolvent. Although the deposit lifeline extended by U.S. financial institutions is a confidence-boosting measure, many of these institutions could suffer a yet undeterminable loss on these deposits. Figure 1 highlights our thinking.

The deposits provided by the consortium will displace deposits that are fleeing or being repriced. The $30B provided by the consortium will likely cost somewhere between 4%-5%, and although it is meant for 120 days, if it stays for a year, the Bank will have to pay $1.2B, at a minimum, to keep these deposits. FRC reported interest expenses of $888M for all of 2022 on its entire deposit & debt obligations of approximately $179B for 2022. In 2022, $75B of the Bank’s deposit base was non-interest bearing.


Key points include:

  • Loan Portfolio Pricing
  • Low-Quality & Primarily Real Estate
  • The Loan Portfolio at FRC


Read the full article, First Republic Bank : Murphy’s Law in Action – Effectively Insolvent, on