Will FRC Stock Recover?

Though all investors take losses at some point in their lives, few ever lose over 95% on a major stock in the space of just a few months. Yet that’s exactly what happened to shareholders of First Republic Bank (NYSE:FRCB) in the early months of 2023.

Why did First Republic Bank produce some of the worst investment losses seen since the 2008 financial crisis, and will the stock ever have a chance to recover?

Why FRC Stock Plummeted and Was Delisted

To understand the collapse of FRC stock, we have to go back to the banking crisis that began with Silicon Valley Bank (SVB) in March of 2023.

SVB’s collapse created broad concerns about banks with large numbers of depositors exceeding the FDIC’s $250,000 insurance limit. In the case of First Republic, more than two-thirds of the bank’s deposits weren’t covered by the FDIC.

Following the collapse of SVB, First Republic began to experience extremely high withdrawal rates as concerned customers took their money from the bank. Within a single month, the bank’s net deposits fell by $72 billion. Even with $30 billion in additional liquidity provided by larger banks, First Republic found itself struggling to stay solvent.

By mid-March, First Republic had received multiple credit rating downgrades that reflected its increasingly risky financial position.

At the end of March, the bank borrowed more than $100 billion from the Federal Reserve to offset its rapidly deteriorating deposits. This allowed it to limp along through most of April, but the problems continued to mount. Eventually, it was forced into FDIC receivership.

Throughout this brief but tumultuous period, shares of FRC were practically in free fall after opening 2023 at $121.30. When the bank entered receivership, its stock was delisted from the NYSE with a final closing price of just $3.51 per share.

The fall of First Republic Bank was both dramatic and unexpected. Only the collapse of Washington Mutual in 2008 saw a larger bank fail.

Though the failure didn’t trigger a broader collapse of regional banks as some investors initially feared, it did show that even perceived safe companies, like banks, can prove to be risky investments when macroeconomic conditions change rapidly.

Could FRC Relist?

Technically, it’s possible that First Republic could relist on a major stock exchange at some point in the future.

The bank has gone through a cycle of delisting and relisting before. FRC was bought out by Merrill Lynch in 2007. The financial crisis of the following year caused Merrill itself to be sold, and FRC was once again taken public in 2010.

In today’s case, however, a relisting seems very unlikely. After regulators seized the bank’s assets, JPMorgan won them in an auction.

By its own estimates, JPMorgan realized a gain of $2.6 billion from the acquisition and stood to generate about $500 million in additional net income per year from First Republic’s assets.

The opportunity was a rare one for the banking giant, as regulators prohibit it from buying other banks under non-emergency circumstances. The last time such an opportunity arose for JPMorgan was during the aforementioned 2008 financial crisis.

That being said, JPMorgan seems unlikely to let go of assets it rarely has the chance to buy. As such, First Republic will most likely continue to operate as one of JPMorgan’s banking businesses.

This would probably eliminate any serious chance for FRC to relist, leaving investors only able to gain any exposure to the bank by investing in JPMorgan itself.

What Happened to the Shareholders?

Needless to say, the fallout from First Republic’s implosion had a massively negative impact on investors who owned shares of the bank’s stock.

After losing the vast majority of its value, FRC’s delisting meant that investors could no longer trade the stock publicly. Though the shares could still be bought and sold over the counter, those who held until the end were left with near-total losses and very limited liquidity.

FRC investors were also in a poor position to receive compensation as the bank’s assets were sold. The FDIC had a first call on the proceeds from selling First Republic’s assets to replenish its insurance fund.

After that, creditors could make their claims on whatever was left. Shareholders were lowest on the list, meaning that little if anything will likely be paid out to them from the bank’s liquidation.

For this reason, a large number of shareholders have taken the alternative path of engaging in a class action lawsuit.

The case is being led by Alecta, a Swedish pension fund that lost nearly $2 billion due to the bank’s failure. While the fund and other plaintiffs that have joined the suit hope to recover some of what they lost, it could take several years for the case to work its way through the courts.

Until then, investors who owned FRC are unlikely to see any real compensation.

Will FRC Stock Recover?

Following the acquisition of FRC assets by JP Morgan, it appears highly unlikely that FRC will recover.

With the bank’s assets and deposits already sold off to JPMorgan, shares delisted and very little chance of a new public offering in the near future, FRC is likely at the end of its road as an investment.

Since being delisted, FRC has moved to the OTC market where it now trades under the symbol FRCB. In this low-liquidity market, the stock has continued to deteriorate.

The price has not risen above $0.35 per share in the last 52 weeks. These low prices reflect the probability that shareholders won’t receive any significant compensation for their losses from the sale of First Republic’s assets.

While FRC may not recover, its collapse offers key lessons for investors. Most importantly, it shows why diversification is extremely important in case of an unexpected corporate collapse.

Few investors would have predicted that FRC would essentially lose all of its value in mere months, but those with outsized exposure to the stock also suffered outsized losses to their portfolios.

Even stocks that look safe and conservative can cause large losses under the wrong circumstances, making it important for investors not to put all their eggs in one basket.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.