First Republic Could Rally as FDIC Insures Deposits Analyst

NEW YORK, March 22 (Reuters) – As beleaguered First Republic Bank (FRC.N) weighs its options, Morgan Stanley analysts say there is a “bull case” for the stock if regulators insure customer deposits until the banking crisis is over.

First Republic, whose shares have lost much of their value since the start of the US banking crisis on March 8, is one of several banks that has spoken with peers and investment firms about potential deals in the wake of US regulators’ takeover of Silicon Valley Bank. (SIVB.O) and Signature Bank (SBNY.O) this month after bank runs.

Morgan Stanley analyst Manan Gosalia set a price target of $54 for shares of First Republic, which fell 4.4% to $15.08 Wednesday afternoon in New York. The optimistic case is based on a scenario in which the Federal Deposit Insurance Corporation (FDIC) insures all consumer deposits, according to a report published Monday.

Such a move by the FDIC would prompt a majority of First Republic’s customers who had withdrawn their money in recent weeks to return it to the bank, “producing a significant recovery in their deposit base,” Gosalia wrote.

Reuters was unable to determine whether the FDIC was considering such a policy, or whether the lender had requested it.

Banks involved in First Republic’s bailout negotiations are asking for a loss-sharing arrangement with the US government, similar to the terms negotiated by the UBS Group (UBSG.S) in its bailout takeover of rival Credit Suisse, according to an industry source.

The acquirer would receive support if they find a larger-than-expected loss after purchasing First Republic, added the source, who asked for anonymity to disclose private conversations.

“What people need is some kind of timely solution to the situation in the First Republic,” the person said. A loss-sharing agreement with the government would “facilitate the deal,” the industry source said.

First Republic did not immediately respond to a request for comment.

The bank is exploring ways it could downsize if efforts to raise new capital fail, Reuters reported Tuesday, citing three people familiar with the matter.

Even if it gets a cash injection, the lender will likely have to take losses on securities in its so-called held-to-maturity portfolio, Morgan Stanley analysts wrote.

A potential buyer would have to absorb losses of $26.8 billion mark-to-market from First Republic’s loan and securities portfolios, while an additional $9.5 billion is needed to recapitalize the bank, Morgan Stanley analysts estimate. .

In a worst-case scenario, shares of First Republic could fall as low as $1, Morgan Stanley analysts estimate.

Citigroup on Tuesday withdrew its estimates for First Republic and revised the stock. Analysts Arren Cyganovich and Kaili Wang said in a report that “some form of government intervention seems increasingly likely, although in what form remains unclear.”

The government intervention could take several forms, “including a government capital injection of some kind of make-toy to protect taxpayers,” they said.

Reporting by Tatiana Bautzer and Chris Prentice in New York Edited by Matthew Lewis

Our Standards: The Thomson Reuters Principles of Trust.


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