Janet Yellen's Comments Fail To Calm Investors As First Republic Stock Remains Volatile

Growing concerns about the safety of bank deposits have prompted investors to approach community and regional banks with caution.

Recent events, such as the collapse of Signature Bank and SVB Financial Group's NASDAQ:SIVB Silicon Valley Bank have raised questions about deposit insurance, prompting U.S. Treasury Secretary Janet Yellen to testify before a U.S. Senate appropriations subcommittee.

Yellen said Wednesday the FDIC was not considering providing "blanket insurance" for banking deposits.

The collapse of Silicon Valley Bank, in particular, led to a widespread investor sell-off in many community and regional banks, including First Republic Bank NYSE:FRC.

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First Republic shares saw heightened volatility following Yellen's comments, and the situation isn't over just yet for the stock.

The company's tangible book value is currently far underwater, leaving a capital gap of up to $13.5 billion, according to Bloomberg, which cited Wedbush analysts.

Although a government-aided deal could potentially save the bank, it is unlikely to benefit stockholders. Wedbush analysts are unable to find a realistic scenario where there is residual value for First Republic common shareholders.

If First Republic's holdings were valued at current market prices, its tangible book value would be negative $73 per share, which means an acquirer would have to deal with a "$13.5 billion capital hole."

The recent injection of $30 billion in deposits from 11 of the largest U.S. banks was only a short-term solution, and a recapitalization of the bank would result in heavy dilution for current holders of common stock.

Unfortunately, the government's involvement in bank collapses has not been favorable for shareholders or unsecured-debt holders.

Yellen made it clear that they are not protected in the event of a takeover. That lack of protection led to bonds issued by First Republic trading at deeply distressed levels. As of Wednesday, its 4.375% subordinated bonds with a 2046 maturity were quoted at 62.5 cents on the dollar.

FRC Price action: Shares of First Republic are trading 1.58% higher in Wednesday's after-market session to $13.33, according to Benzinga Pro.

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