Is it safe to say the word “bank” yet without causing shares of any players in the sector to fall dramatically? Probably not, as the market activity around First Republic Bank (FRC) stock early Monday showed.
First Republic shares are down 65% as investors continued digesting the fallout from the collapse of – take your pick by now – Silicon Valley Bank, Silvergate and the latest victim – Signature Bank.
The drop came even as the private lender and wealth management firm tried to assuage investor fears that its operations would not be affected by Silicon Valley Bank’s implosion. On Sunday evening, the San Francisco-based bank disclosed that its financial position had improved after it had secured additional liquidity from the Federal Reserve and JPMorgan Chase, taking its total available borrowing capacity to over $70 billion. Additionally, that figure does not factor in the possibility for more liquidity under the Federal Reserve’s announced Bank Term Funding Program.
Nevertheless, against a backdrop of such uncertainty, Raymond James analyst David Long thinks it will be a while before the fog clears.
“Despite the added liquidity sources, we believe deposit balances will remain under pressure in the immediate near-term,” the analyst explained. “While we believe the bank received some deposit inflows on Thursday during the bank run at SVB Financial, additional panic among large depositors may have driven deposit balances lower since Thursday.”
Long believes that eventually First Republic can get back to “driving growth and improved profitability,” so long as the panic amongst bank depositors cools down following the bank regulators’ support. Additionally, over the long run, Long sees the bank’s customer service-driven model “driving market share gains and increase in investor interest,” and that could enable the stock to command a “premium valuation.”
However, not quite yet. The analyst believes that until the panic surrounding bank deposits settles, there is some “immediate near-term price risk.”
As a result of all the hoopla, Long downgraded FRC from Strong Buy to Market Perform (i.e. Neutral), while his prior $150 price target is taken off the table. (To watch Long’s track record, click here)
6 other analysts join Long on the sidelines, and 1 analyst recommends walking away, but with an additional 10 Buys, the stock receives a Moderate Buy consensus rating. (See FRC stock forecast)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
