Regional Banks FRC and WAL Could Be M&A Targets

Some regional banks, ill-prepared for the Federal Reserve’s rapid interest rate hikes, loaded up on bonds or loans that are now underwater. If their assets were marked to market, the banks could be wiped out, according to MarketBeat, which predicts more regional bank acquisitions to come in the wake of the Silicon Valley Bank (SVP) sale.

First Republic Bank (FRC) and Western Alliance Bancorporation (WAL) are two such banks poised for takeover, MarketBeat said. FRC has a reputation for excellent boutique service, but with a San Francisco tech company client base like SVP’s, it has been the subject of a bank run. To generate liquidity, it secured $30 billion in deposits from US megabanks and several Federal Reserve loans. Some clients, though, view the bank as unsafe, MarketBeat reported, and according to Reuters, it has a negative book value somewhere between $9.4 billion and $13.5 billion.

Become a Subscriber

Please purchase a subscription to continue reading this article.

Subscribe Now

FRC has been talking with potential buyers, MarketBeat said, predicting that a sale would fall below current share prices, which have dropped 90% since the SVP failure in early March.

As for WAL, a hedge fund favorite that has traded, historically, at a rich price-to-tangible-book multiple of over 2x, likely has a negative book value because of deep unrealized losses. The multiple now is 0.8x.

While other banks also have unrealized losses, FRC and WAL are the worst offenders, MarketBeat said, adding that if management wants to get deals done, they may attempt to do so before having to make a bearish earnings release.