Bank Stocks Alert: Why First Republic Bank (FRC) Stock Is Down 60% Today


  • Depositors at Silicon Valley Bank (SIVB) will be made whole.
  • Investors in bank stocks and bonds won’t.
  • There remains a fear of contagion in the U.S. banking system.
FRC stock - Bank Stocks Alert: Why First Republic Bank (FRC) Stock Is Down 60% Today

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Shares in First Republic Bank (NYSE:FRC), based in San Francisco, plunged 60% overnight following the government’s decision to bail out Silicon Valley Bank (NASDAQ:SIVB) depositors.

The bailout of depositors zeroed out its investors and bondholders. This is causing shares in other regional banks to wobble, especially regional banks.

Regions Bank (NYSE:RF) in Alabama fell 2% on March 10 and another 5% over the weekend. Prosperity Bancshares (NYSE:PB) of Texas fell 4.5% March 10, then 3% in the aftermarket. Even Wells Fargo (NYSE:WFC) was down over 3% overnight.

Stock and Bond Risk

The Federal Reserve, FDIC and Treasury Department issued a joint statement saying the government will protect all SVB depositors as well as those at Signature Bank of New York (NASDAQ:SBNY), which also crashed over the weekend. It added, “Shareholders and certain unsecured debtholders will not be protected. Senior management has also been removed.”

It’s this last that has bank stocks reeling. Barron’s and hedge fund managers like Bill Ackman applauded the move, insisting it’s “not a bailout.”

But Peter Schiff, global strategist for Europac, condemned the move. He said it will lead to greater instability, increased inflation and that it “unfairly socializes current losses.”

Bank analyst Dick Bove said the entire U.S. banking system remains at risk. He said depositors and investors have lost faith because banks engage in “accounting gimmickry” to show earnings and capital that don’t exist.

The biggest winners were Silicon Valley venture capitalists and their investments, who get immediate access to their money to make payroll and handle routine expenses. The Nasdaq, an index heavy with tech stocks, was up 0.3% at the time of this writing.

A statement from President Joe Biden said he will be “holding those responsible for this mess fully accountable” and that he will make a more detailed statement on the crisis this morning.

What Happens Next?

Bank depositors will be fine, but those holding bank stocks like FRC stock or bonds issued by banks may still have a lot to fear. Stocks rose in pre-market trading but bond yields fell.

On the date of publication, Dana Blankenhorn held no positions in any companies mentioned in this article. The opinions expressed in this article are those of the writer, subject to the Publishing Guidelines.

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