Investors should sell shares of First Republic Bank after the company’s latest quarterly report, according to Janney. The firm downgraded the beleaguered regional bank to sell from neutral and lowered its price target on the stock to $8 from $10. The new target implies downside of 50% from Monday’s close. Janney analyst Timothy Coffey said in a note Tuesday that the bank desperately needs to reposition itself and raise cash to survive. First Republic said Monday deposits declined a staggering 40% in the first quarter. Its shares fell more than 20% in the premarket. FRC YTD mountain First Republic Bank needs to seriously consider a strategic pivot in order to keep the institution alive, according to a Tuesday note from Janney. “We believe FRC needs to drop the growth-at-all-cost business model that defined the company and focus on profitability, which could be an epic undertaking considering it has not reported an [return on assets] greater than 1% since 4Q16,” Coffey said. “But, before any of that can happen, we believe FRC needs to raise capital to offset potential losses on the sale of assets.” The bank was one of the key players at the center of a liquidity crisis last month spurred by the collapse of Silicon Valley Bank. Standard & Poor’s went as far as to downgrade the bank’s credit rating B+ from BB+ in March as the crisis intensified. And despite plans from First Republic to narrow its balance sheet as well as lay off as much as 25% of bank employees, Coffey thinks more aggressive steps may be necessary for the bank to return to some semblance of normality. “We believe more could be done. We estimate interest expenses to support an outsized balance sheet (relative to deposits) could result in an EPS loss in 2Q23,” Coffey said. “In our opinion, that puts greater emphasis on lowering the loan-to-deposit ratio from the current 166% to a more reasonable 100%.” — CNBC’s Michael Bloom contributed to this report.
