First Foundation Stock Drops Following $228 Million Fundraising: Regional Bank Exposed to Heavy Commercial Real Estate – First Foundation (NYSE:FFWM), Direxion Daily Regional Banks Bull 3X Shares (ARCA:DPST)

Shares of First Foundation Inc. Drop After Investor Help from Fortress Investment Group

Shares of First Foundation Inc., a Texas-based regional bank, took a significant hit on Wednesday after receiving a much-needed lifeline from investors led by Fortress Investment Group. The stock, which closed at $6.58 a share on Tuesday, plummeted 24.7% to $4.95 by mid-day on Wednesday.

Fortress, along with Canyon Partners, Strategic Value Bank Partners, North Reef Capital, and other investors, agreed to purchase $228 million in common and preferred shares at $4.10 each from the struggling Dallas bank, which boasts about $14 billion in assets. Fortress will inject $115 million into First Foundation as part of the deal, with Canyon Partners contributing $46 million, and Strategic Value and North Reef Capital each investing $22 million. After the transaction closes, Fortress will own 24.9% of the bank, while other investors will hold up to 10%.

The capital infusion is aimed at providing First Foundation with the time needed to offload certain loans, as the commercial real estate market faces challenges due to higher interest rates and the shift to remote work, resulting in widespread declines in property values. This has put pressure on banks, especially smaller institutions with higher concentrations of real estate loans, to find ways to raise cash.

Federal Reserve Chair Jerome Powell has acknowledged the potential for more failures in the commercial real estate sector but reassured that there is no systemic risk to the broader financial system. D.A. Davidson & Co. upgraded its outlook on First Foundation following the capital raise, citing improved balance sheet flexibility and capital strength.

As regional banks navigate these challenges, retail bank exchange-traded funds also saw declines in mid-day trading on Wednesday. The SPDR S&P Regional Banking ETF slipped 1.29%, the Direxion Daily Regional Banks Bull 3X Shares ETF fell 3.89%, and the iShares U.S. Regional Banks ETF declined 0.95%.

Overall, the investment from Fortress and other partners provides a much-needed boost for First Foundation as it works to navigate the current economic landscape and strengthen its financial position.

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