Shares of troubled San Francisco lender First Republic (FRC) fluctuated on Monday after that announce It will stop paying dividends on its preferred shares and the bank will not be able to find a buyer willing to take its troubles voluntarily, said an analyst.
The bank has been exploring several options that might restore some stability, including a sale, but Wedbush Securities said in a note Monday that First Republic faces “the Hobson option where it has no other choice but to proceed as an independent company” due to the amount of unrealized losses in its general budget.
Even a $0-per-share sale is unlikely, Widbush said, because essentially any buyer would still have to shell out billions to absorb those losses.
First Republic and many other regional banks are under intense investor scrutiny because they hold billions of dollars in bonds that are now worth less because of the Federal Reserve’s aggressive campaign to raise interest rates. First Republic suffered an unrealized loss of $4.18 billion on its held-to-maturity securities at the end of 2022, according to Wedbush. These actual losses are not calculated until First Republic is sold or bought.
The only way to sell First Republic, Widbush said, is if regulators take over the bank and sell its assets at a bargain price. It expects the bank to avoid this type of regulatory takeover and “dispose of it as a stand-alone company in the foreseeable future.”
First Republic stock fell more than 1% on Monday before recouping some of those losses. Over the past month, it’s down about 85%. “We are well positioned to manage our short-term deposit activity,” a senior Republican spokesperson told Yahoo Finance. The bank announces its earnings on April 24th.
First Republic is trying to navigate the turmoil that began with the March 10 and 12 failures of Silicon Valley Bank and Signature Bank. It took advantage of $70 billion from the Fed’s bank financing program and received another $30 billion in unsecured deposits from 11 of the nation’s largest banks, including JPMorgan Chase (JPM) and Bank of America (BAC).
she has Cancellation of annual bonuses For all of its executives, it has suspended common stock dividends and hired JPMorgan’s investment banking division as well as Lazard to help advise on financial options that include raising capital and exploring a sale.
Woodbush said its announcement on Friday that it would also suspend dividends on its preferred stock “reflects the acute strain on its business in the wake of recent bank failures.”
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