According to reports, key officials at First Republic Bank dumped millions of dollars worth of stock in the bank in the months leading up to the business’s near collapse.
Although federal authorities took over two failing banks in California and New York, the stock price of San Francisco-based First Republic Bank (FRB) began to fall last week and plunged 73% from March 8 to March 13. On Thursday, as FRB was wobbling under pressure from its clients withdrawing money, a coalition of banks decided to put $30 billion in deposits into FRB.
Notwithstanding the rescue agreement made the day before, FRB shares continued to plummet on Friday morning. Shares lost more than 80% of their value, dropping below $26. According to The Wall Street Journal, the bank’s management sold over $12 million worth of stock in the bank in the months leading up to the decline.
Several months before the bank nearly collapsed in March, executives were selling off their shares. Executive Chairman James Herbert II has sold $4.5 million in shares since the beginning of the year. FRB’s chief credit officer, president of private wealth management, and chief executive also sold shares for a combined $7 million. According to WSJ, the average selling price of a share of stock was $130.
Financial institutions are protected from insider trading laws that apply to other businesses. Investors often scour records kept by the Securities and Exchange Commission (SEC) for clues as to the health of a firm, but FRB is not obligated to report insider trades and sells to the SEC. Instead, the Federal Reserve Board notifies the Federal Deposit Insurance Corporation or any insider sales (FDIC). The Wall Street Journal found that as of Wednesday, FRB was the only business in the S&P 500 that did not disclose insider sales to the SEC.
Earlier this month, federal regulators stepped in and took control of Silicon Valley Bank (SVB) when it collapsed under the weight of customers pulling their money out. SVB had seen a similar sell-off in the days leading up to its demise. It has been claimed that both the DOJ and the SEC have opened an inquiry into the demise of SVB.
Greg Becker, CEO of SVB Financial, and Daniel Beck, CFO of SVB Financial, both sold a considerable number of shares of stock after exercising stock options the week before SVB Financial went bankrupt. On February 27th, Becker made a $2.3 million sale of 12,451 shares. On the same day, Beck made a $575,000 profit on the sale of nearly a third of his stock. The sales were included in paperwork submitted 30 days prior.
Until its failure last week, SVB had amassed nearly $175 billion in client deposits, making it the 16th largest bank in the United States. Ninety percent or more of the deposits were more than the $250,000 minimum required by the FDIC to get insurance coverage.
To operate, the FDIC relies on insurance premiums paid by banks and other financial institutions. The FDIC’s Deposit Insurance Fund had $128.2 billion at the end of last year.