A securities class action has been filed against First Republic Bank (FRC) on behalf of all persons and entities who purchased or otherwise acquired First Republic securities between January 14, 2021 through March 14, 2023. This case has been filed in the USDC – N.D.CA.
Throughout the Class Period, First Republic and its executives repeatedly touted the Company’s “safe and sound” business model, assuring investors that First Republic was strongly-positioned—particularly due to its purportedly “diversified deposit base”—to weather a variety of economic conditions, and downplayed the risks that rising interest rates posed to the Company’s net interest income (“NII”) and net interest margin (“NIM”)—critical financial metrics that calculated the income generated on the Company’s interest-earning assets—and the value of the Company’s mortgage loan portfolio.
In FDIC filings and multiple public statements throughout the Class Period, First Republic misrepresented the strength of the Company’s balance sheet, liquidity, and position in the market. Among other things, the Defendants understated and concealed the magnitude of the risks facing the Company’s business model that would result from any decision by the Federal Reserve System (the “Fed”) raising the federal funds rate, thereby undermining the value of the Company’s loan and securities portfolios and liquidity.
On October 14, 2022, Plaintiff and other members of the Class (defined below) began to learn the truth about the risks the Company faced from the Fed increasing the federal funds rate when the Company announced disappointing third quarter 2022 financial results, reporting that First Republic’s NII growth had slowed to 20.6% year-over-year (down from 24.1% year-over-year growth the prior quarter) and its NIM had plummeted to 2.71% (down from 2.80% the prior quarter). First Republic attributed the decrease in the Company’s NIM to “average funding costs increasing more rapidly than the offsetting increase in the average yields on interest-earning assets.”
On this news, the price of First Republic common stock declined by $22.14 per share, or more than 16%, from a closing price of $134.73 per share on October 13, 2022, to a closing price of $112.59 per share on October 14, 2022.
Notwithstanding assurances from First Republic and its executives about the Company’s operating strength and ability to withstand a rising interest rate environment, additional corrective disclosures surfaced on March 8, 2023, when SVB Financial Group (“SVB”), the parent company of Silicon Valley Bank (considered by many analysts to be a peer bank of First Republic) announced that it was seeking to raise approximately $2.25 billion in capital due to continued higher interest rates, pressured public and private markets, and elevated levels of deposit attrition. SVB also disclosed that it had sold “substantially all of its available for sale securities portfolio,” incurring a loss of approximately $1.8 billion on the sale. In response, SVB’s depositors rushed to withdraw their funds out of fear over SVB’s solvency. On March 10, 2023, SVB collapsed, and regulators seized control of the bank, placing SVB in FDIC receivership. Investors immediately began to question First Republic’s ability to withstand the interest rate environment and remain solvent.
On this news, the price of First Republic common stock declined by an astonishing $83.79 per share, or more than 72% over three trading sessions, from a closing price of $115.00 per share on March 8, 2023, to a closing price of $31.21 per share on March 13, 2023.
Despite statements from First Republic and its executives confirming the stability of the Company’s business model, investors learned more about First Republic’s vulnerability on March 15, 2023, after the end of the Class Period, when S&P Global Ratings (“S&P”) downgraded its longterm issuer credit rating and preferred stock issue rating for First Republic due to the risks of deposit outflows leading to increased funding costs. That same day, Fitch Ratings (“Fitch”) announced that it had also downgraded First Republic’s credit rating, observing that “FRC’s funding and liquidity profile has changed and represents a ‘weakest link.’”
On the news of the downgrades, the price of First Republic common stock declined by $8.47 per share, or more than 21%, from a closing price of $39.63 per share on March 14, 2023, to a closing price $31.16 per share on March 15, 2023.