Raising Uncertainty to Extreme and Lowering Fair Value Estimate to $3 For First Republic

Based on a Wall Street Journal report, which stated that First Republic is estimated to have lost closer to $70 billion in deposits (roughly 40% of its fourth-quarter 2022 deposit base), we are lowering our fair value estimate to $3 per share from $34. Previously, our bear case was for the bank to lose roughly 30% of its deposits, and based on this new information, it appears even that was not bearish enough. Based on losing $70 billion in deposits, even with the $30 billion deposit injection from other banks at “market rates,” we think it is very unlikely that First Republic remains a profitable bank, so we believe an Extreme Uncertainty Rating is appropriate.