It is said that the upper management of First Republic Bank sold shares of stock worth millions of dollars before the bank came close to failing.
Last week, the stock price of First Republic Bank (FRB), based in San Francisco, began to decline before drastically falling by 73% between March 8 and March 13, as the federal government assumed control of two insolvent banks, one in California and the other in New York. On Thursday, a consortium of banks promised to inject $30 billion in deposits into FRB in an effort to stabilize it due to its customers withdrawing their funds.
On Friday morning, FRB's stock price kept dropping, even though a rescue agreement had been formed the day before. The stock dropped to under $26, a decrease of more than 80%. According to The Wall Street Journal, the bank's executives had sold shares amounting to almost $12 million in the months prior to the plunge.
In the months preceding the March near-failure, executives unloaded stock in the bank. During the first part of the year, Executive Chairman James Herbert II disposed of $4.5 million in shares. Additionally, three other senior executives – FRB's chief credit officer, president of private wealth management, and chief executive – sold off a total of $7 million worth of stock. According to the Wall Street Journal, the stock was sold at an average rate of $130 per share.
Banks are exempt from the insider trading regulations that most other companies must comply with. They are not required to disclose insider trades and sales to the Securities and Exchange Commission, which is where investors usually look for clues about a company's well-being. Instead, FRB reports these sales to the Federal Deposit Insurance Corporation. According to the Wall Street Journal, FRB is the only company in the S&P 500 index that does not make these disclosures to the SEC as of Wednesday.
Before SVB—which was taken over by federal regulators a few weeks ago due to its collapse from customers pulling out their money—there was a similar sell-off. The DOJ and SEC are said to have started an inquiry into the fall of SVB.
Greg Becker, CEO of SVB Financial, and CFO Daniel Beck both made use of their stock options and unloaded a substantial amount of shares the week preceding SVB's fall. Becker sold 12,451 shares on Feb 27, netting around $2.3 million. Beck disposed of nearly a third of his stocks, garnering roughly $575,000 on the same day. The transactions had been part of the plans declared thirty days prior.
Prior to its failure last week, SVB was the 16th largest banking institution in the U.S., with a total of $175 billion in customer deposits. More than 90% of these deposits exceeded the FDIC's $250,000 protection limit.
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At the close of 2020, the Deposit Insurance Fund of the Federal Deposit Insurance Corporation (FDIC) had a balance of $128.2 billion, funded by premiums paid by banks and other financial institutions for FDIC coverage.