Two days ago, First Republic Bank’s management declined to answer analysts’ questions during its first-quarter earnings presentation. It didn’t take long for the spark of concern to flare up: Stocks had freefalled 80% in just 48 hours, and even though the stock market rallied over 11% today, fear of a new bankruptcy in the US financial system is not lost on data provided by First Republic Bank, Silicon Valley Bank and He confirmed the damage caused by Signature Bank’s collapse a month ago: The deposit flight was 57% and close to $100,000 million. After the recent banking crisis, the country’s government refused to bail out more establishments in the industry and First Republic Bank. only custom recovery cartridge left to move forward.
The situation is difficult for a government that does not want to prolong the financial turmoil. On the one hand, Analysts consider it unlikely that the US administration will allow the bank to fail. and the risk of creating another domino effect in the process. The other solution will emerge as the winner. “It seems likely that a group of banks will buy assets from First Republic Bank and the United States Government will provide them with some sort of guarantee,” they say of XTB. It should be noted that the firm received $30,000 million in deposits from 11 major banks a month ago to stabilize their situation, but they were not insured, so “First Republic Bank’s failure will make these funds harder to access.” And withdrawing them is also not reasonable at the moment, as it could trigger the bank’s eventual bankruptcy.
Although it is the most logical decision, implementing the custom recovery package will not be easy either. To go smoothly for First Republic Bank, banks would have to buy their assets above market prices, at the buyer’s expense. regional bank Wants to sell $50-100 billion worth of high-quality loans This means a loss due to sharp increases in interest rates. Therefore, the bank is trying to sell these assets above market prices, and according to him, no one wants to buy them without guarantees from the government at the moment. political. From XTB, “However, it cannot be ruled out that a group of banks in the United States actually agreed to purchase these securities, as it might be a commercially wise decision.”
The risk of bankruptcy remains
Silicon Valley Bank and Signature Bank’s decline still kicks in regarding deposits. Although the big American bank reports good quarterly results, lost an average of 2% of its deposits due to this banking crisis. First Republic Bank, on the other hand, fell 41% in the first three months of the year, reaching a total of $176.3 billion, the lowest level since the second half of 2020. million dollars in deposits transferred by the 11 largest banks in the country. Therefore, the actual number of leaked deposits is about 100,000 million, about 57%.
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Its attempt to sell assets in long-term securities such as mortgages for 50-100 billion euros is in line with the duration of its assets and liabilities. The inability to immunize its portfolio and its inability to hedge interest rate risk was one of the main reasons for Silicon Valley Bank’s failure, as unrealized losses on its bond portfolio increased after the Federal Reserve tightened its monetary policy. “If First Republic Bank fails to better adjust the time between assets and liabilities, the bank Risk of trouble if interest rate volatility continues“, they explain from XTB.
But the sale of assets hides another reason: paying off debt. The firm greatly increased lending in the first three months of the year, and Total debt rose to $107 billion Of the 16,800 million recorded in the last quarter of 2022, $80,000 million is short-term debt, liabilities due in the next 12 months. In other words, the fear of bankruptcy sooner or later is still hidden. When the U.S. Treasury insures all deposits regardless of size, owner, or Federal Deposit Insurance Company insurance limit (FDIC), it doesn’t want to participate in a bailout that costs as much as Silicon Valley Bank and Signature Bank. Now all that remains is to know the move of the big bank.