It is now six weeks since the crisis in several banks caused an uproar in the financial world. In the USA, two financial institutions went bankrupt, in Switzerland the ailing Credit Suisse had to be forcibly merged with UBS. After that, relative calm returned to the financial markets for a while. However, the events surrounding the US regional bank First Republic show that the banking crisis is far from over.
This published numbers on Monday evening, which immediately caused nervousness in the industry to flare up again. According to this, First Republic customers withdrew $100 billion in deposits in the first quarter of this year; these have almost halved. Customers are fleeing to larger institutions that are considered “too big to fail”. Analysts had expected only about half the outflow of money. Because First Republic had been supported with state guarantees in the critical days six weeks ago. Apparently that wasn’t enough to reassure customers – a sign that confidence has not yet returned. And that applies not only to First Republic, but to the entire banking market, especially that of regional institutes in the USA.
As a result, First Republic’s share price plummeted by 50 percent. The share price has fallen by 93 percent since the beginning of the year – almost all investors’ money has been lost. The papers of other regional banks were also pulled down: PacWest Bancorp, for example, lost up to nine percent, Western Alliance Bancorp almost six percent. Large banks in the US also suffered losses. In Germany, the shares of Deutsche Bank and Commerzbank lost a good three percent on Tuesday. On Wednesday, the German stock exchange opened 0.5 percent in the red. “Those who have already checked the banking crisis may have done so too early,” said portfolio manager Thomas Altmann from investment advisor QC Partners.
Better not to answer any questions
At the height of the crisis, the largest US banks had parked $30 billion of their own funds with First Republic to support the ailing institution. Apparently, that didn’t do anything to reassure customers either. The institute has now announced that it will reduce the workforce by a quarter, reduce the lending business and also restrict other activities. Analysts expressed concern that the bank was underperforming its peers because of the dwindling deposits. Because it has to finance itself at higher interest rates, it cannot use loans to generate profits that are as high as those of its competitors. “The First Republic is in an odd position in terms of the level of stress it’s under,” said David Chiaverini, an analyst at Wedbush Securities Inc. He expects the bank to make operating losses for the next several years .
Bank chief Mike Roffler issued perseverance slogans in a conference call. “We continue to take steps to strengthen our business,” he said. Contrary to usual practice, he did not answer a number of questions from analysts. After less than 15 minutes, he ended the conference call.