First Republic Bank (NYSE:FRC) is on the verge of collapse following a $100 billion loss in investor deposits, causing the White House, Fed, and Treasury to consider implementing an “open bank” rescue plan. The bank’s shares have plummeted by 93% since the start of the year after reporting Q1 results and net deposit outflows of $72 billion, prompting concerns that it may not recover. In addition, the bank’s deposits have dropped 40% from $176.4 billion to $104.5 billion within a quarter.
First Republic’s struggle with deposit outflows has made it a less attractive acquisition prospect, and the number of interested parties has fallen as a result. Seeking Alpha News, which uses a quant rating system to evaluate stocks, put a sell rating on FRC on October 20, 2022, when it was trading at $111.47, and the stock is now trading at $8.10/share. This shows the effectiveness of the grading system in predicting poor-performing stocks.
Financial Services, specifically XLF, is the worst-performing US sector this year, with banks facing unprecedented liquidity challenges, and investors fleeing into the security of Treasury bonds. The Fed’s efforts to control inflation through rate hikes have resulted in an inverse relationship between interest rates and bonds. The value of bonds falls, causing yields to rise. FRC is restructuring its balance sheet and reducing expenses and short-term borrowings to offset the impact of deposit outflows. This strategy may allow the bank to recover and become more attractive to investors in the future.
