First Republic Bank is facing backlash after executives sold millions of dollars in shares before the bank saw a precipitous decline in value and currently faces the prospect of insolvency. FRB's stock has plummeted in recent days, and insiders had been selling for two months leading up the drop, according to government filings.
Several executives, including the bank's president of private wealth management, the chief credit officer, and the CEO, sold a combined $7 million in shares in the two months leading up to the stock's crash. Executive Chairman James Herbert II also sold $4.5 million worth of shares in the same timeframe.
The executives' shares were sold at $130 per share on average. First Republic shares opened at $20.22 today.
Importantly, these trades weren't reported to the Securities and Exchange Commission, leaving investors without crucial insights into insider behavior at the company. The SEC requires other major companies to report all insider trades, but First Republic Bank falls under a different set of regulations – an apparent loophole – set by the Securities Act of 1933, which exempted banks from registering their securities with the SEC.
The chief risk officer of First Republic Bank, for example, sold millions of dollars worth of shares on March 6, just four days before Silicon Valley Bank crumbled and failed.
SVB's failure triggered a panic which affected other banks, including First Republic – which apparently has done a terrible job at managing risk, as it emerged as one of the most vulnerable financial institutions in America and is currently on the brink of failure.
First Republic Bank remains the only company listed on the S&P 500 that does not report insider trades to the SEC. Signature Bank was similarly exempt but was replaced in the index after its closure on Sunday. The FDIC is one of the few organizations privy to reports of insider trading at First Republic, and posts them individually on their website.
All executives declined to comment, according to the Wall Street Journal. A spokesperson for Mr. Herbert, however, claimed that the sales were consistent with his estate planning and philanthropic giving.
Professor Sehwa Kim from Columbia Business School found that the market did not react significantly to insider-trading filings on the FDIC site compared to those filed on the SEC's website. He suggested that insiders at banks not filing with the SEC were more likely to sell shares ahead of negative news.
Following the massive decline in First Republic shares and with the bank staring down insolvency, the biggest banking institutions in the US, including JPMorgan Chase & Co., are presently discussing a joint rescue of First Republic that could involve a significant capital injection to prop up the beleaguered lender, according to inside sources.