Is First Republic Bank (OTC:FRCB) still tradable on the stock market? The answer is yes, but it's still toxic, and there's a great deal of risk associated with First Republic Bank, which is now a penny stock. I am bearish on First Republic Bank stock and consider it to be fine for short-term traders but a no-go for serious investors.
After SVB Financial Group subsidiary Silicon Valley Bank (SVB) imploded and Signature Bank (NASDAQ:SBNY) collapsed, Berkshire Hathaway (NYSE:BRK.B) (NYSE:BRK.A) CEO Warren Buffett warned that more bank failures were likely. Unsurprisingly, the Oracle of Omaha's prediction was spot-on, as First Republic Bank became the next domino to fall in the U.S. regional banking sector.
I also offered a warning for prospective investors, especially if they were thinking about taking a share position in First Republic Bank. Still, even today, some folks may be tempted to go on a bottom-fishing expedition with First Republic Bank stock. However, just because the shares might look cheap, this doesn't mean they actually offer a good value for the long term.
First Republic Bank's Failure Should Serve as a Lesson for Investors
As First Republic Bank's serious financial problems came to light in March, founder Jim Herbert and CEO Mike Roffler assured the company's depositors and investors that “First Republic’s capital and liquidity positions are very strong.” In hindsight, it's evident that First Republic Bank's capital position wasn't actually all that "strong," and there's a lesson that financial traders can learn from this.
The main takeaway is that you have to conduct your own due diligence on investable businesses and form your own conclusion. After all, executives aren't always going to admit that a company is going down the tubes. Part of their job, for better or for worse, is to put a positive spin on practically every development and to reassure shareholders.
Even while First Republic Bank's management saw the glass as half-full, the red flags (beyond Buffett's warning) were there for everyone to see. A number of First Republic's advisors left the company, and First Republic experienced rapid deposit outflows. Some of the bank's former advisors are still seeking employment at other financial institutions.
Now, First Republic Bank isn't even fully in control of its own destiny anymore. Famously, First Republic Bank entered into receivership with the Federal Deposit Insurance Corporation (FDIC) for a brief period of time and was then bought out by JPMorgan Chase (NYSE:JPM).
First Republic Bank is Now Trading on the OTC
If you're looking to trade shares of First Republic Bank today, the company's shares aren't tradable on the New York Stock Exchange (NYSE) anymore. The company was delisted from the NYSE and currently trades as FRCB stock on the over-the-counter (OTC) market.
People who held shares of First Republic Bank prior to March of this year will most likely have to accept a total or near-total loss on their investment. Nevertheless, some speculators might want to take a chance on FRCB stock, which looks cheap at around $0.45 per share.
Just remember, when you buy a stock, you're buying a piece of a business. Ask yourself this: can I really believe in First Republic Bank for the long haul, given the company's prior behavior?
First Republic over-leveraged itself on certain asset types (especially government bonds) and held a large number of uninsured deposits. JPMorgan Chase will probably force First Republic Bank to clean up its act, but there are plenty of other publicly-traded banks out there with better reputations than First Republic.
Additionally, First Republic Bank will undoubtedly come under the scrutiny of U.S. lawmakers/regulators this year. Don't assume that just because First Republic was bought out by a big bank, you should conclude that the company is completely out of the woods now.
Is FRCB Stock a Buy, According to Analysts?
Turning to Wall Street, FRCB stock is a Hold based on two Buys, 10 Holds, and two Sell ratings. The average First Republic Bank price target is $50.88, but this target is likely to come down at some point.
Conclusion: Should You Consider First Republic Bank Stock?
Only time will tell whether First Republic Bank offers much value to JPMorgan Chase. Possibly, First Republic will end up bringing a lot of baggage and problems, including a damaged reputation and regulatory scrutiny.
As for FRCB stock, because it's very low priced and trades on an over-the-counter market, it could remain volatile for the foreseeable future. That's fine for some day traders, but long-term investors should be cautious. By and large, financial traders can likely find a more favorable risk-to-reward scenario in the banking sector and don't need to rush to buy shares of First Republic Bank stock.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
