US regional bank First Republic is struggling to survive

Status: 04/27/2023 1:52 p.m

After the collapse of two US regional banks in March, the banking crisis seemed to be over – but now a bank in the US is faltering again. In a panic reaction, customers withdraw massive amounts of money.

The situation is precarious: after the US regional bank First Republic published its quarterly report earlier this week, the stock plummeted. It is now only $5.69. The papers have lost more than 90 percent in value since the beginning of the year, and this week alone it was almost 40 percent at times.

The market value of the First Republic, which has total assets of $233 billion, fell to about $888 million, falling below the $1 billion mark for the first time. For comparison: In November 2021, the regional bank, which is headquartered in San Francisco, still had a market value of more than $40 billion. The “fear of another bank earthquake” has returned to investors’ heads, said market expert Timo Emden.

$100 billion in deposits withdrawn

In March, Silicon Valley Bank and Signature Bank collapsed. That shook customer confidence in US regional banks – fearing another small bank would collapse, customers have been withdrawing funds from the First Republic in large numbers.

Deposits fell by 41 percent to $104 billion in the first quarter after around $176 billion at the end of 2022, the money house announced this week. $30 billion of these deposits are bailouts from eleven major US banks that wanted to stabilize the institute in March and send a signal of confidence.

The struggling US regional institute First Republic Bank receives 30 billion dollars – from other banks.

Investors fear for their money

Thus, during the banking turmoil, customers withdrew about $100 billion in deposits. Apparently the bank’s wealthy customers are concerned that if the bank had to be bailed out by the Federal Deposit Insurance Corporation (FDIC), their large deposits would not be covered by deposit insurance. Analysts have warned that the massive withdrawal of funds has thrown the relationship between loans and deposits out of balance.

The US bank was known for providing large mortgages on favorable terms to wealthy customers. However, the interest rate hike, which is now 5.0 percent in the USA, has caused mortgages, which are often granted at fixed interest rates over a period of 30 years, to have lost considerably in value.

Despite a major rescue operation, the situation at the US regional bank First Republic remains critical.

“A bank that will soon be gone”?

“Those who have already checked the banking crisis may have done so too early,” said portfolio manager Thomas Altmann from investment advisor QC Partners. The current crisis in the First Republic shows impressively that the risk of deposits dwindling among small and medium-sized institutions has not yet been averted.

ACY Securities economist Clifford Bennett goes a step further: “First Republic is a bank that may very well soon be dead. While trying all possible rescue strategies, it continues to slide inexorably.”

First Republic has a rescue plan

But the First Republic apparently does not want to surrender to this fate without a fight: As the US stock exchange broadcaster CNBC learned, the bank has a plan to save itself. According to this, large US banks are to buy bonds from the regional bank. This would ensure that operations can continue.

For the big banks that would take part in this bailout, there would be small losses; however, with a successful bailout, they could avoid the higher fees that would be incurred if the First Republic had to be bailed out by the US Federal Deposit Insurance Corp. in the event of a bankruptcy.

Will Big Banks Save the Bank?

But whether big banks are actually ready to save the First Republic is unclear. Because the rescue operation in March obviously did not inspire the hoped-for trust. That’s why there are growing fears that some big banks and potential buyers may find they have more to gain from the bank’s closure and FDIC takeover.

Financial sources say Treasury Secretary Janet Yellen and key banking regulators are alarmed. Because actually one wants to avoid that further banks jump over the blade. In any case, the turbulence in the First Republic once again raises the question of whether the banking crisis could flare up again on both sides of the Atlantic.

Germany’s largest bank has brought in billions in profits and wants to reduce costs even more.

Big banks with profits in the first quarter

In the case of the big banks, however, the banking sector seems largely stable. This was shown by the quarterly reports of the major US banks JPMorgan Chase, Wells Fargo and the City Group. For example, between January and the end of March, JPMorgan was able to earn USD 38.3 (previous year: 30.7) billion, more than ever before in a quarter. Citigroup, number three in the US industry, increased quarterly profits by seven percent to $4.6 billion. And Wells Fargo, the fourth-largest US bank in terms of total assets, was even able to post a profit increase of 32 percent to $5.0 billion in the first quarter.

There was also good news from the German banking sector today: Deutsche Bank earned a total of 1.158 billion euros in the first three months of the current year – an increase of nine percent. It is the eleventh quarter in a row that Germany’s largest financial institution has posted a profit.

source site