Shares of First Republic Bank (NYSE: FRC) slid more than 10% in pre-market trading on Friday after the bank announced that it was suspending its dividends even as the Bank received uninsured deposits of around $30 billion from Bank of America (BAC), Citigroup (C), JPMorgan Chase (JPM), Wells Fargo (WFC), Goldman Sachs (GS), Morgan Stanley (MS), Bank of New York Mellon, PNC Bank, State Street, Truist, and U.S. Bank.
The bank stated, “The Bank is focused on reducing its borrowings and evaluating the composition and size of its balance sheet going forward. Consistent with this focus and during this period of recovery, the Bank’s Board of Directors has determined to suspend its common stock dividend.”
As of March 15, First Republic had a cash position of around $34 billion, not including the $30 billion of uninsured deposits from the big banks. The bank has been going through quite an upheaval as its credit rating was cut to junk by S&P Global and Fitch Ratings, citing deposit outflow risk.
Following this news, Atlantic Equities analyst John Heagerty downgraded the stock to a Hold from a Buy. The analyst commented, “Management is exploring different strategic options which may include a full sale or divestments of parts of the loan portfolio. The limited information provided implies that the balance sheet has increased substantially, which may well necessitate a capital raise. The size of any capital raise will depend on whether new deposits are used to pay down short-term borrowing.”
The analyst also reduced his revenue forecast by 29% and 34% in FY23 and FY24, respectively. Heagerty pointed out that even if the costs drop by 9% to 12% over the next two years, by his estimates, adjusted EPS is likely to decline by 95% and by 94% in FY23 and FY24, respectively.
Analysts remain cautiously optimistic about FRC stock with a Moderate Buy consensus rating based on seven Buys, 10 Holds and one Sell.