|Court:||United States District Court for the Northern District of California|
|Class Period:||01/14/2021 - 05/14/2023|
|Case Leaders:||Avi Josefson, Scott R. Foglietta, Hannah Ross|
On April 24, 2023, Bernstein Litowitz Berger & Grossmann LLP (“BLB&G”) and Kessler Topaz Meltzer & Check, LLP (“KTMC”) filed a class action lawsuit in the U.S. District Court for the Northern District of California alleging violations of the federal securities laws by First Republic Bank (“First Republic” or the “Company”) (NYSE: FRC), certain of the Company’s current and former senior executives, and the Company’s auditing firm KPMG, LLP (collectively, “Defendants”). The action is brought on behalf of all persons and entities who purchased or otherwise acquired First Republic securities between January 14, 2021, and March 14, 2023, inclusive (the “Class Period”).
BLB&G and KTMC filed this action on behalf of City of Hollywood Police Officers’ Retirement System, and the case is captioned City of Hollywood Police Officers’ Retirement System v. First Republic Bank, No. 23-cv-1993 (N.D. Cal.). The complaint is based on an extensive investigation and a careful evaluation of the merits of this case. To view the complaint, see the Case Documents section of this page.
First Republic’s Alleged Fraud
First Republic is a California state-chartered bank and trust company that provides private banking, private business banking, and private wealth management. Much of First Republic’s customer base consists of wealthy households living in U.S. coastal cities, and a key component of First Republic’s lending strategy has been to provide these wealthy households with residential mortgages at low interest rates.
The complaint alleges that, throughout the Class Period, Defendants misrepresented the strength of First Republic’s balance sheet, liquidity, and position in the market. Among other things, Defendants understated and concealed the magnitude of the risks facing the Company’s business model that would result from any decision by the Federal Reserve System raising the federal funds rate, thereby undermining the value of the Company’s loan and securities portfolios and liquidity. As a result of Defendants’ misrepresentations and omissions, First Republic securities traded at artificially inflated prices during the Class Period.
The truth began to emerge on October 14, 2022, when First Republic announced disappointing third quarter 2022 financial results, reporting that the Company’s net interest income growth had slowed to 20.6% year-over-year (down from 24.1% year-over-year growth the prior quarter) and its net interest margin (“NIM”) had plummeted to 2.71% (down from 2.80% the prior quarter). First Republic attributed the decrease in the Company’s NIM to “average funding costs increasing more rapidly than the offsetting increase in the average yields on interest-earning assets.” As a result of these disclosures, the price of First Republic common stock declined by $22.14 per share, or more than 16%.
Then, on March 8, 2023, SVB Financial Group (“SVB”), the parent company of Silicon Valley Bank (considered by many analysts to be a peer bank of First Republic) announced that it was seeking to raise approximately $2.25 billion in capital due to continued higher interest rates, pressured public and private markets, and elevated levels of deposit attrition. SVB also disclosed that it had sold “substantially all of its available for sale securities portfolio,” incurring a loss of approximately $1.8 billion on the sale. As a result, on March 10, 2023, SVB collapsed, and regulators seized control of the bank, placing SVB in FDIC receivership. Notwithstanding assurances from First Republic and its executives about the Company’s operating strength and ability to withstand a rising interest rate environment, investors immediately began to question First Republic’s ability to withstand the interest rate environment and remain solvent. On this news, the price of First Republic common stock declined by an astonishing $83.79 per share, or more than 72%, over three trading sessions.
Despite statements from First Republic and its executives confirming the stability of the Company’s business model, investors learned more about First Republic’s vulnerability on March 15, 2023, when S&P Global Rating downgraded its long-term issuer credit rating and preferred stock issue rating for First Republic due to the risks of deposit outflows leading to increased funding costs. That same day, Fitch Ratings announced that it had also downgraded First Republic’s credit rating, observing that the Company’s “funding and liquidity profile has changed and represents a ‘weakest link.’” On the news of the downgrades, the price of First Republic common stock declined by $8.47 per share, or more than 21%.
If you wish to serve as Lead Plaintiff for the Class, you must file a motion with the Court no later than June 23, 2023, which is 60 days after the publication date of April 24, 2023. Any member of the proposed Class may seek to serve as Lead Plaintiff through counsel of their choice, or may choose to do nothing and remain a member of the proposed Class.
If you wish to discuss this action or have any questions concerning this notice or your rights or interests, please contact Scott R. Foglietta of BLB&G at 212-554-1903, or via e-mail at email@example.com, or Jonathan Naji of KTMC at 484-270-1453, or via e-mail at firstname.lastname@example.org.
- Events BLB&G Partner Jeroen van Kwawegen to Serve as Panelist at Columbia Law School Conference on M&A and Corporate Governance December 1, 2023 Learn More
- Publications “SEC administrative enforcement process called into question, highlighting importance of private actions” by Jonathan D. Uslaner and Chloe Jasper Published in Reuters November 27, 2023 Learn More
- Events BLB&G Partner Greg Varallo to Moderate American College of Governance Counsel Panel November 9, 2023 Learn More
- Events BLB&G Partner Rebecca Boon to Moderate Panel at ILEP November 2023 Symposium November 9, 2023 Learn More
- Events BLB&G Senior Counsel Thomas James to Teach “Mergers and Acquisitions” Class at Boston College Law School November 8, 2023 Learn More