Worries Wall Street: Is First Republic Bank the next to collapse?

Another bank worries investors in the US: First Republic (First Republic Bank), which plunges about 70% in Wall Street trading. This after the bank’s stock fell by 50% on Friday. At the beginning of trading today, the value of the bank was 14 billion dollars.

First Republic Bank, established in 1985 and registered for trading on Nasdaq in 1986, specializes in providing private banking services, private business banking, real estate loans and capital management services, including trust and custody services, to customers in selected metropolitan areas in 80 branches in the USA B and its headquarters is in San Francisco. Among its clients are capitalists and powerful companies, and for example, the bank gave a mortgage to Mark Zuckerberg. According to the bank, the average deposit per customer is $200,000, less than the $250,000 coverage provided by the Federal Deposit Insurance Corporation (FDIC). For insured entities, the bank’s average business account holds approximately $500,000.

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The bank’s profits increased in 2022 and in the first nine months of the year they stood at $1.28 billion, a jump of 19% compared to the corresponding period. The bank also successfully passed the Corona period, and compared to its competitors, managed to achieve substantial growth in loans, net interest income and wealth management assets. The stock that in March 2020 dropped to about $80 also jumped to $219 in November 2021.

Investors are concerned about the future of the bank due to the similarity to the profile of Silicon Valley Bank. While the bank’s deposits were more biased toward capitalists than Silicon Valley Bank’s deposits, many of its deposits are also uninsured. The bank manages assets amounting to 213 billion dollars, with more than 140 billion dollars of the deposits not insured.

Similar to Silicon Valley Bank, First Republic Bank’s latest reports also showed a clear discrepancy between the fair market value of the assets and their registration on the company’s balance sheet. This is mainly due to the mortgages they hold, which have risen sharply in the past year due to the increase in interest rates by the Federal Reserve. Like Silicon Valley Bank’s bond holdings, First Republic’s long-term mortgage assets are probably worth less than their balance sheet value.

First Republic Bank (FRB)

specialization: retailing
Deposits: 176 billion dollars
year of establishment: 1985
Down: San Francisco, California
Working: 6,300
status: open
Rescue plan: in

Silicon Valley and First Republic emerged as banks with balance sheets unprepared for higher interest rates and a potential recession, Brian Levitt, global market strategist at Invesco, told Business Insider. He added that “investors, when they smell blood, turn their attention to the next bank exposed to interest rate risk and specific credit risk, and then to the next bank,” he said. “It seems that First Republic Bank, which has significant exposure to the real estate markets in the coastal areas, is next on the list.”

“It’s worrying when they tell you, ‘Hey, everything’s fine!'”

Some of the customers of the First Republic Bank have already started expressing regret in the last few days for leaving their deposits in the bank. “You see that your bank is down 30%, it’s a little worrying,” Avraham Franji, CEO of artificial intelligence startup Akkio, told the Wall Street Journal. “Even more worrying is when they tell you, ‘Hey, everything OK!'”.

At the same time, venture capital firm Omega Venture Partners sent a letter to its portfolio companies, encouraging them to open a cash brokerage account or make sure their bank deposit accounts are insured if they have money in regional banks like First Republic. “The risk of leakage to these institutions is more likely than not happening!”, the company stated in a statement.

In the First Republic they tried to curb the panic. Also on Friday, the bank issued a statement saying that it has a diverse group of customers and “over $60 billion of available and unused credit capacity at the Federal Home Loan Bank and the Federal Bank.”

JP Morgan offered support and financing

The investment bank JP Morgan contacted the First Republic Bank in the last few days to offer their support and help with financing if necessary. FRC is a big customer of J. according to Morgan, and last night a contract was indeed signed between them and the Federal Reserve, which includes financing of 70 billion dollars to strengthen its liquidity. After the publication of the agreement, the bank made sure to clarify that the financial situation had strengthened. “First Republic’s capital and liquidity position is very solid, and the bank’s capital remains at a high level well above the regulatory threshold required for banks with sufficient financial strength,” the bank’s chairman and CEO said in a joint statement.

In an email sent on the same day to the bank’s customers in another attempt to reassure, it is stated that “We want to take advantage of the moment and emphasize the safety and stability of First Republic, demonstrated by the continued strength of our capital, liquidity and activity.” However, investors’ concerns have not subsided.

Meanwhile, the Fed announced on Sunday that it will launch a new program called the “Bank Period Funding Program.” This program will offer loans to banks for a period of up to one year, provided they pledge certain types of collateral such as US Treasury securities and mortgage-backed securities.

By Editor

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