First Republic says liquidity is “very strong” to calm nerves
- First Republic tried to reassure customers after its share price plummeted following SVB’s collapse.
- The bank said the average amount of customer deposits was well below the insured maximum of $250,000.
- However, about 68% of the bank’s deposits, or nearly $120 billion, are uninsured.
First Republic Bank tried to reassure customers that their deposits were safe as regional lenders scramble to quell contagion fears sparked by the collapse of Silicon Valley Bank.
SVB was shut down by California regulators and taken over by the Federal Deposit Insurance Corporation (FDIC) on Friday after its share price plummeted after a failed $2.3 billion capital raise.
With $209 billion in assets and about $175 billion in deposits, it was the largest banking collapse since Washington Mutual in 2008 and the second largest collapse on record.
A significant portion of its deposits are uninsured, leaving clients exposed to large losses if a new buyer cannot be found.
There are fears that the problems that have gripped SVB, a fallout triggered by rising interest rates weighing on its bond portfolio and heightened outflows from corporate customers, could also affect other banks of a similar size. There are concerns that some customers of other regional banks like First Republic might also choose to withdraw their funds.
First Republic is trying to reassure investors
First Republic’s share price plummeted by a third last week as SVB imploded. Western Alliance, a comparable-sized regional bank, also fell a similar percentage.
Big banks like Bank of America and JPMorgan also fell, but their shares stabilized on Friday while First Republic added to its own losses.
According to its most recent 10-K filing, First Republic, which has more than 80 stores in seven states, held $176.4 billion in deposits at the end of 2022. Of that, $119.5 billion was uninsured. The 68% figure is significant, albeit much smaller than the SVB’s 89%.
In a regulatory filing filed on Friday, First Republic reassured customers of its liquidity position as the stock price fell.
The average size of his clients’ deposits was $200,000, less than the FDIC insured limit of $250,000, while the average business account held $500,000.
“First Republic’s liquidity position remains very strong,” the bank said. “Sources beyond a well-diversified deposit base include over $60 billion of available, unused credit capacity at the Federal Home Loan Bank and the Federal Reserve Bank.”
Fears of infection remain
But investors are far from convinced that First Republic has allayed fears of contagion.
As with SVB, First Republic’s recent filing revealed a large discrepancy between the market value and book value of its assets. These are mostly tied up in mortgages, whose interest rates have risen in line with the Fed’s base rate over the past year.
Like SVB’s bond holdings, First Republic’s long-term mortgage investments are most likely worth less than their true value.
Brian Levitt, global market strategist at Invesco, told Insider that SVB and First Republic in particular have emerged as banks whose balance sheets are ill-prepared for higher interest rates and a potential recession.
“Investors who smell blood then turn to the next bank that has interest rate risk and specific credit risk and then to the next,” he said. “First Republic Bank, which has significant exposure to coastal real estate markets, appears to be next on the list.”
In a tweet on Saturday, billionaire investor Bill Ackman warned regulators “to fix a soon-to-be-irreversible blunder” that could engulf the entire banking sector, echoing fears of contagion.
Regulators could step in to create a broader safety net to secure more of troubled bank deposits to reassure nervous customers.
Bloomberg reported that the FDIC and the Federal Reserve are in talks to set up a vehicle that would create a backstop to secure more deposits at banks facing similar problems as the SVB.
First Republic did not immediately respond to Insider’s request for comment, which was made outside of normal business hours.
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