The future looks highly uncertain for First Republic Bank (NYSE:FRC). Yesterday, the New York Stock Exchange halted trading on FRC stock as shares plunged amid high market volatility, falling by as much as 40%. Today, shares are rebounding, but many questions abound as to how the company will proceed. One of the most pressing is whether the U.S. government will come to the aid of the troubled company in the name of ending the banking crisis. As of now, the answer is not clear, but there’s reason to believe that it may not institute a bailout. If it does not, First Republic could go the way of Lehman Brothers.
How likely is it that First Republic will survive this highly turbulent time? Let’s take a look at these recent developments and examine what they may mean for investors.
Is This the End for FRC Stock?
Today FRC stock has resumed trading, and the market is reacting well. As of this writing, shares are up more than 12% for the day and show no signs of slowing down. However, investors shouldn’t mistake this for an indication that the company is out of the danger zone. As InvestorPlace assistant news writer Shrey Dua reports, price predictions for FRC have been mixed, with some experts suggesting that it will fall as low as $3 per share. That would be a decline from its current price of $6.40 of more than 50%. And investors will likely begin offloading shares if FRC stock starts moving in that direction.
However, falling to $3 per share may be the least of First Republic’s problems. Investopedia reports that the Federal Government isn’t likely to want to bail out the troubled bank, and neither are the nation’s biggest banks. Wall Street has already put together a $30 billion rescue package for the company, but it hasn’t been enough. There may be even more reason to suspect that the company won’t survive this difficult time. Per CNN:
“When the banking crisis erupted, about two-thirds of First Republic’s deposits were uninsured with the Federal Deposit Insurance Corporation. That’s lower than the 94% at Silicon Valley Bank — but at the end of last year, First Republic had an exceptionally high ratio of 111% for loans and long-term investments to deposits, according to S&P Global — meaning it has loaned and invested more money than it has in deposits.”
That’s reason enough to be highly skeptical of the company’s growth prospects. Even on days when trading isn’t halted, FRC stock doesn’t demonstrate anything close to resembling sustainable growth. In fact, its recent performance has raised the question of if another stock market crash is coming. As InvestorPlace contributor Dana Blankenhorn notes, the company recently reported losing up to $100 billion in customer deposits last month. That should be the absolute last thing that investors want to see.
What Comes Next
It’s impossible to pinpoint precisely where FRC stock will go from here. However, it’s not hard to see that the company is headed down a dangerous track that could easily end in the worst-case scenario. If First Republic is not bailed out, it will likely face the same fate as SVB Financial Group (OTCMKTS:SIVBQ), which now trades over-the-counter (OTC) and fails to generate even marginal growth. That’s not the best-case scenario for FRC, yet it is the most likely.
On the date of publication, Samuel O’Brient did not hold (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.
