While investors continue monitoring the ongoing bank crisis, several gurus have ridden First Republic Bank’s (FRC, Financial) rollercoaster ride during the past week, including Bridgewater Associates, Diamond Hill Capital (Trades, Portfolio), Jim Simons (Trades, Portfolio)’ Renaissance Technologies, Baillie Gifford (Trades, Portfolio) and David Rolfe (Trades, Portfolio)’s Wedgewood Partners.
First Republic Bank leads bank rally on government aid
On Tuesday, U.S. Secretary of the Treasury Janet Yellen said at the American Bankers Association’s Washington, D.C. Summit that following the collapse of SVB Financial Group's (SIVB, Financial) Silicon Valley Bank and Signature Bank (SBNY, Financial), the federal government made “decisive and forceful actions to strengthen public confidence in the U.S. banking system.” Yellen underscored that the steps taken were not focused on aiding specific banks, but to protect the broader banking system. The Treasury secretary further said that “similar actions could be warranted” if deposit runs continue at other banking institutions.
Yellen further mentioned the Federal Reserve launched a Bank Term Funding Program, a “new lending facility” that helps banks “meet the needs” of all bank depositors. The secretary mentioned that 11 banks, including a few large banks like Bank of America Corp. (BAC, Financial) and JPMorgan Chase & Co. (JPM, Financial), pledged $30 billion in deposits to First Republic Bank, representing a vote of confidence in the U.S. banking system.
Shares of First Republic Bank traded around $17.44, up approximately 43.19% from the previous close of $12.18. The stock has tumbled approximately 40% over the past five days and more than 85% over the past month.
GuruFocus’ GF Value Line labeled the San Francisco-based bank a possible value trap based on the company’s low price-to-GF-Value ratio of 0.09 and poor ranks for financial strength and momentum.
Company financial strength overview
First Republic’s financial strength ranks just 3 out of 10 on several warning signs, which include a low Piotroski F-score of 2 out of 9, a cash-to-debt ratio that underperforms approximately 82% of global competitors and a debt-to-equity ratio that underperforms approximately 58% of global banks.
According to CNBC, while the banking industry remains well capitalized, banks have loaded up on longer-duration securities like Treasury bonds, mortgage-based securities and municipal bonds. Higher interest rates prompted banks like Silicon Valley Bank to sell assets at a discount to face value, engendering fears of a bank crisis.
Company momentum overview
The bank’s momentum ranks 4 out of 10: Although the company’s 14-day relative strength index of 12.81 outperforms approximately 95% of global competitors, suggesting possible undervaluation, First Republic has a 6-1 month momentum index of -9.18% and a 12-1 month momentum index of -24.41%, which underperforms more than 86% of global banks.
Company profitability and growth overview
Despite the company having poor financial strength and momentum, First Republic’s GF Score of 72 out of 100 is driven by a growth rank of 9 out of 10 and a profitability rank of 6 out of 10.
The bank’s high growth rank is driven by several positive investing signs, which include a five-star business predictability rank and a three-year revenue growth rate that outperforms approximately 87% of global competitors.
First Republic’s profitability ranks 6 out of 10 on the back of net profit margins and returns underperforming more than half of global competitors despite having 10 years of positive net income over the past decade.
Gurus have bought shares in struggling bank
Based on 13F portfolio filing data, a Premium feature of GuruFocus, 10 gurus purchased shares of First Republic Bank during the fourth quarter of 2022.
Investors should be aware 13F filings do not give a complete picture of a firm’s holdings as the reports only include its positions in U.S. stocks and American depository receipts, but they can still provide valuable information. Further, the reports only reflect trades and holdings as of the most-recent portfolio filing date, which may or may not be held by the reporting firm today or even when this article was published.
Bridgewater Associates
Founded by Ray Dalio (Trades, Portfolio), Bridgewater Associates invests based on Dalio’s key principles, which include employing radical truth and radical transparency.
As of December 2022, Bridgewater owns 41,870 shares of First Republic Bank, giving the position 0.03% equity portfolio weight. The firm purchased 29,464 shares during the fourth quarter, expanding the position by 237.50%.
Diamond Hill
Columbus-based Diamond Hill Investment Group Inc. (DHIL, Financial) provides a wide range of mutual funds for its clients. Diamond Hill Capital (Trades, Portfolio) owns 2,127,253 shares of First Republic Bank as of December 2022, giving the position 1.18% equity portfolio weight. The firm added 1,494,508 shares during the fourth quarter, boosting the position by 236.19%.
Renaissance Technologies
New York-based Renaissance Technologies analyzes and executes stock trades using mathematical models that predict price changes in securities. The models are based on analyzing as much data as possible and then looking for non-random price movements.
As of December 2022, Renaissance owns 899,400 shares of First Republic Bank, giving the position 0.15% equity portfolio weight. The firm added 324,381 shares during the fourth quarter, boosting the position by 56.41%.
Baillie Gifford (Trades, Portfolio)
Baillie Gifford (Trades, Portfolio), a U.K.-based investment management partnership firm, seeks long-term capital appreciation by applying fundamental analysis and bottom-up stock picking to exploit global opportunities.
As of December 2022, the firm owns 2,728,854 shares of First Republic Bank, giving the position 0.35% equity portfolio weight.
Rolfe
Rolfe’s Wedgewood Partners seeks companies that have a dominant product or service that is practically irreplaceable, a sustainable and consistent level of growing revenues, earnings and dividends, a high return on equity without the use of excessive debt and a shareholder-oriented management team.
As of December 2022, Wedgewood owns 184,096 shares of First Republic Bank, giving the position 4.12% equity portfolio weight. The firm added 33,250 shares during the fourth quarter, expanding the position by 22.04%.
GuruFocus is pleased to have Rolfe as a speaker at its value conference on May 4 and 5. Register now to secure your spot; prices increase by $100 on April 1!
