A potential takeover over First Republic could spell trouble for the bank’s shareholders, according to Wedbush Securities. Analyst David Chiaverini downgraded the bank stock to neutral from outperform, saying that a potential sale would require a marking of its loans and securities to fair value, and wipe out equity value for shareholders. FRC YTD mountain First Republic shares have tumbled 72% in 2023 He said that “a distressed M & A sale could result in minimal, if any, residual value to common equity holders owing to FRC’s significant negative tangible book value after taking into account fair value marks on its loans and securities.” The downgrade from the firm comes after a consortium of major players agreed Thursday to deposit $30 billion into First Republic in an effort to rescue the bank after its more than 72% tumble this month amid the failure of Silicon Valley Bank . Shares dropped about 14% before the bell. Given this backdrop, Chiaverini slashed his price target to $5 a share from $140, representing more than 85% downside from Thursday’s close. This base case calls for an 85% probability that the bank’s acquired for close to $0 a share and 15% chance that shares would be valued at 10 times price to earnings based on 2024 earnings. Chiaverini views a sale of the bank as beneficial to the broader banking sector, and the “best the option to avoid receivership.” However, marking the company’s tangible book value to fair value as of Dec. 31 implies negative $73 a share and symbolizes a $13.5 billion capital pit for any buyer. “While the company has an exceptionally strong reputation and franchise value as evidenced by its high NPS, we are doubtful that the valuation accorded to these factors would be enough to cover the tangible book value shortfall on a FV basis,” he said. — CNBC’s Michael Bloom contributed reporting
