First Republic Bank’s top executives reportedly offloaded stock in the bank worth millions of dollars in the months before the bank nearly crashed.
The stock price of First Republic Bank (FRB), based in San Fransisco, began to slide last week before plummeting 73% from March 8 to March 13 while federal regulators took over two failing banks; one in California and another in New York. On Thursday, a coalition of banks agreed to infuse $30 billion in deposits into FRB as it was teetering under pressure from its own clients withdrawing their money.
Shares of FRB continued to fall on Friday morning despite the rescue deal put together the day before. The share price fell below $26, a decline of over 80%. In the months preceding the drop, the bank’s executives sold shares in the bank worth nearly $12 million, according to The Wall Street Journal.
Executives offloaded stock in the bank for months leading up to the March near-collapse. Since the beginning of the year, Executive Chairman James Herbert II sold $4.5 million worth of stock. Three other top officials — FRB’s chief credit officer, president of private wealth management, and chief executive — sold another $7 million worth of stock. The stock sold for an average of $130 a share, according to WSJ.
Banks are exempted from insider trading regulations that apply to most companies. FRB is not required to report insider trades and sales to the Securities and Exchange Commission (SEC) where investors typically comb through records for signs of a company’s health. Instead, FRB reports insider sales to the Federal Deposit Insurance Corporation (FDIC). As of Wednesday, FRB was the only company listed on the S&P 500 index that did not report insider sales to the SEC, according to a WSJ analysis.
A similar sell-off took place prior to the collapse of Silicon Valley Bank (SVB), which was taken over by federal regulators earlier this month after it crumbled under pressure from clients withdrawing funds. The Department of Justice and SEC have reportedly launched an investigation into the collapse of SVB.
SVB Financial Chief Executive Greg Becker and CFO Daniel Beck both exercised stock options and sold large quantities of shares the week before SVB collapsed. Becker sold 12,451 shares on Feb 27 for about $2.3 million. Beck sold about one-third of his shares for about $575,000 on the same day. The sales had been part of plans filed 30 days earlier.
SVB was the 16th largest bank in the U.S. before it collapsed last week with roughly $175 billion worth of customer deposits. Over 90% of those deposits were over the FDIC’s $250,000 threshold for guaranteed insurance.
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The FDIC is an independent agency that is funded through premiums that banks and other financial institutions pay on the FDIC’s insurance. At the end of last year, the FDIC’s Deposit Insurance Fund held $128.2 billion.