What happened
After what has been a brutal month for the bank, shares of First Republic (FRCB) rebounded this week and were trading about 11% higher as of 1:43 p.m. ET on Thursday, according to data from S&P Global Market Intelligence.
So what
First Republic got caught up in some of the same issues that ultimately brought down SVB Financial and Signature Bank earlier this month.
Namely, it had a lot of uninsured deposits and billions in unrealized losses in its bond portfolio that could wipe out a substantial amount of shareholder equity if the bank ever had to sell these bonds to cover deposit outflows. Many analysts also surmise that serving similar markets and customers as SVB didn't help, either. First Republic reportedly saw $70 billion of deposit outflows, and the stock is down almost 89% over the last month.
But the bank is still here, and the more time that passes, the more likely it is that the banking system will stabilize and that First Republic will survive. Earlier this week, federal banking regulators were also reportedly contemplating expanding its Bank Term Funding Program (BTFP) to better help banks like First Republic.
BTFP helps banks with their underwater bond portfolios by allowing them to pledge eligible bonds at par as collateral for loans for up to one year to assist with liquidity. However, only certain types of securities qualified as eligible collateral, and First Republic doesn't have a large enough amount of these securities to make a big enough difference.
Now what
The good news is that First Republic is still here. The more time it has for things to stabilize in the banking system, the better it is for the bank.
That said, I'm certainly not ready to jump into this stock yet because the bank supposedly has a sizable hole in its balance sheet and has had to take on higher-cost deposits to replace the lower-cost ones that have since exited the bank.
Considering the bank's lower-yielding loan portfolio, it could be looking at a huge hit to earnings, especially in the near term. Until there is a better line of sight, I plan to stay on the sidelines.
