First Republic Bank still ‘top pick’, JP Morgan reveals amid US banking collapse
2 min read 17 Mar 2023, 05:58 PM ISTLarge banks with $16tn in assets have provided First Republic, a financial institution, with $30bn in deposits, believed to provide sufficient runway by analysts.
PremiumJPMorgan analysts have reconfirmed their Overweight rating and Top Pick designation on First Republic Bank (FRC) following the commitment of $30 billion in uninsured deposits by some of the largest US banks, including Bank of America, Citigroup, JPMorgan, and Wells Fargo, to boost First Republic's liquidity. The analysts view this move as historic and have never seen the industry come together to help secure a peer in need before.
The analysts believe that the $30 billion in deposits provided by the large banks, which have $16 trillion of aggregate assets, will be enough to provide First Republic with sufficient additional runway.
"We've covered the bank sector for over two decades and we have never seen the industry come together before to help secure a peer in need," they wrote in a note, as quoted by investing.com.
"We suspect that with the banks providing the deposits having $16T of aggregate assets, that the amount being provided was determined to be enough to provide First Republic with sufficient additional runway."
They see FRC as a higher risk but potentially very high reward name, trading "well below" TBV (tangible book value), and maintain their OW (Overweight) rating. They have revised their price target to $62 per share, which implies an 80% upside potential, down from their previous price target of $150 per share.
FRC stock is down about 5% in pre-market trading on Friday after adding 10% the previous day. Despite the recent volatility, the analysts are optimistic about FRC's future prospects, especially given the recent support from other major banks in the industry.
Why First Republic Bank is in focus now?
Banking stocks globally have been battered since Silicon Valley Bank collapsed last week due to bond-related losses that piled up when interest rates surged last year, raising questions about what else might be lurking in the wider banking system.
Within days, the market turmoil had ensnared Swiss lender Credit Suisse, forcing it to borrow up to $54 billion from Switzerland's central bank to shore up liquidity.
By Thursday afternoon, the spotlight whipsawed back to the United States as big banks led an effort to prop up support for First Republic, a regional lender whose shares had tumbled 70% in the last nine trading sessions.
Some of the biggest U.S. banking names including JPMorgan Chase & Co, Citigroup Inc, Bank of America Corp, Wells Fargo & Co, Goldman Sachs and Morgan Stanley were involved in the rescue, according to a statement from the banks.
U.S. regulators said the show of support was most welcome, and showed the resilience of the banking system.
