Wedbush on Friday downgraded First Republic Bank stock FRC to neutral from outperform and slashed its price target on the stock to $5 a share, a fraction of its current level of around $29 a share in premarket trades. While the $30 billion deposit infusion by 11 banks is a plus, the bank has also grown liabilities to shore up its liquidity, analysts said. This in turn will, “increase interest expense materially, and puts the bank in a very tough position from a profitability standpoint,” Wedbush analysts said. A sale of the bank amounts to the best option to avoid bankruptcy, analysts said. “A sale of FRC to larger entity should be beneficial for the banking system as a whole, and should help ease contagion fears,” Wedbush analysts said. “However, given the fair value marks embedded in both its loan and securities portfolios, we find it difficult to come up with a realistic scenario where there’s residual value for FRC common equity holders.”
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