It seems like there’s a new development every day lately with First Republic Bank (NYSE:FRC). Today’s major development isn’t good news for First Republic, though. Reportedly, an analyst gave FRC stock a price target that’s bound to turn some heads on Wall Street.
Some of First Republic Bank’s investors have been anxious after the SVB Financial Group (NASDAQ:SIVB) debacle. Because First Republic isn’t a giant bank like Citigroup (NYSE:C) or Bank of America (NYSE:BAC), some traders might worry about First Republic Bank’s ability to deliver value to its shareholders.
However, First Republic Bank received a financial lifeline as Citigroup, Bank of America, and other big banks pledged $30 billion worth of deposits to First Republic. Does this mean the company is problem-free now?
Not necessarily. Wedbush analyst David Chiaverini is concerned that a potential sale of First Republic Bank “could result in minimal, if any, residual value to common equity holders.” Furthermore, Chiaverini expects that First Republic Bank could end up with “significant negative tangible book value.” The analyst is taking First Republic’s “fair value marks on its loans and securities” into account when issuing this warning.
What’s Happening With FRC Stock?
FRC stock declined 20% during the first hour of trading today, so clearly, some investors are concerned about First Republic Bank. Chiaverini’s commentary may put added pressure on the First Republic Bank share price.
Investors are also probably reacting to the analyst’s downgrade of First Republic Bank. Specifically, Chiaverini lowered his rating on shares from “outperform” to “neutral.”
There’s more to the story, though. In a move that may shock some investors, Chiaverini reduced his price target on FRC stock from $140 to $5. Granted, it’s not unusual for analysts to lower their price targets when a stock loses significant value.
Still, $140 to $5 is a notable price-objective reduction. On the other hand, the analyst isn’t entirely negative in his view of First Republic Bank. In particular, Chiaverini acknowledged that First Republic has an “exceptionally strong reputation and franchise value.”
However, today’s financial traders aren’t optimistic about First Republic Bank’s future prospects. Granted, it’s possible that FRC stock could rebound at some point. Or, it could continue to move towards Chiaverini’s ultra-low price target, to the chagrin of some current First Republic shareholders.
On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
