Each depositing two and a half billion the new Bank of New York Mellon PNC State Street and U.S Bank each depositing a billion dollars is that a long-term solution I don’t think so are there other companies that have exposure to the bigger systemic problem very possibly treasury secretary Janet Yellen
Who negotiated today’s rescue with among others JP Morgan’s Jamie dimon went to Capitol Hill today to quiet the concerns I can reassure the members of the committee that our banking system is sound Republicans also press the treasury secretary about whether other Banks Across America can expect similar
Rescues she responded if there is fear of significant economic and financial consequences hi welcome back to Joe blogs in today’s episode I want to talk to you about what’s happening at First Republic Bank immediately following the collapse of Silicon Valley Bank concerns started Rising amongst customers and investors of First Republic Bank because
The characteristics and the profile of First Republic Bank are very similar to Silicon Valley Bank over the course of the last seven days the share price has collapsed and the bank has frantically been trying to put facilities in place to shore up its balance sheet now as you
Saw at the start of the video 11 U.S banks have clubbed together and given the bank 30 billion dollars in cash and this is an unprecedented and highly unusual structure the financial markets have not seen a rescue package like this before however the 30 billion only represents a small fraction of the
Amount of money that first Republic has raised over the course of the last week or so so in today’s video have a look at the profile of first Republic Bank and establish exactly why everybody’s concerned about its current situation we’ll have a look at what’s been happening with the share price because
The shares were actually suspended 17 times on Thursday the 16th of March before this new bailout facility was announced we’ll then look at the multiple bailout deals that first Republic has agreed over the course of the last week which amount to 229 billion dollars of finance and then
Finally today I’ll wrap up with my summary and talk about whether or not first Republic is now out of the woods whether it’s home and hosed or if it’s still facing the risk of a potential collapse first Republicans founded in 1985 and at the end of 2022 had 212 billion dollars
In assets and 176 billion in deposits about 70 percent of its deposits are uninsured which is above the medium of 55 for medium-sized Banks and the third highest in the group after Silicon Valley Bank and Signature Bank which is one of the reasons that investors and customers were getting concerned
This chart plots the risk profile of a variety of U.S banks on the left hand side we’ve got the percentage of deposits from retail customers and higher percentages on this scale are seen as being a positive because it’s less likely for millions of retail customers to remove all of their money
Overnight compared with large corporates who can simply do that with the stroke of a keyboard and the bottom scale looks at Banks loans and securities as a percentage of deposits and for this metric a lower percentage is seen as being lower risk so overall when looking at this chart the lowest risk Banks
Would be in the top left-hand corner and the highest risk banks will be in the bottom right hand corner and you can see the bank in the bottom right hand corner here is Silicon Valley Bank and alongside it along the bottom access is Signature Bank but if you look above
Silicon Valley Bank you can see that first Republic which is marked as FRC on this chart is also classified as being high risk because it has less than 40 percent of its deposits with retail depositors and its loans and securities as a percentage of deposits is coming out above 110 10 percent
The worry has been growing since Friday in fact there were multiple social media posts over the weekend showing people lining up at First Republic branches in Southern California to withdraw their money first Republic also spent the weekend trying to reassure clients their money is safe releasing a statement saying the additional borrowing capacity
From the Federal Reserve continued access to funding through the federal Home Loan Bank and ability to access additional financing through JP Morgan chasing company increases diversifies and further strengthens first Republic’s existing liquidity profile but it’s now been reported that on Sunday the 13th of March which was the date that Signature
Bank collapsed First Republic secured additional financing through JP Morgan giving access to a total of 70 billion dollars in funds through various sources in addition to the 70 billion dollar loan facilities from JP Morgan First Republic has also borrowed 109 billion dollars from the FED between the 10th of
March and March the 15th and an additional 10 billion dollars from the federal Home Loan Bank on the 9th of March and in addition to those 119 billion dollars of loans on Thursday the 16th of March the bank received an injection of 30 billion dollars from 11
U.S banks the rescue deal which was the brainchild of JP Morgan chief executive Jamie dimon saw JP Morgan Bank of America Citigroup and Wells Fargo all depositing five billion dollars each with the bank Goldman Sachs and Morgan Stanley deposited 2.5 billion each and bny Mellon PNC Financial Services State
Street Corp trust Financial Corp and U.S Bank Corp all put one billion dollars each into the transaction all 11 banks have agreed to keep the funds at First Republic for an initial term of 120 days the rescue deal was put in place after a highly volatile day that saw First
Republic shares halted 17 times on the stock market the initial response to the rescue deal from the market was possible with shares Rising 10 percent however concerns amongst the investors are rising again after first Republic said in a filing that it was suspending its dividend and it also said it had a cash
Position of around 34 billion excluding the 30 billion in new deposits the additional news that the banks have only committed to leave these deposits with First Republic for 120 days has also raised concerns that this is not a genuine rescue deal because it’s not Equity that they put in it’s simply cash
That they’re leaving on deposit this chart shows the movement and the share price of First Republic Bank over the last five years and you can see that the high point for the shares came in July 2021 when the share price hit 219 and at that point in time the market
Capitalization of the business was more than 40 billion dollars and if we now change the graph to look at what’s been happening to the share price over the last three months you can see that on the 7th of March which is the day before silvergate Bank announced its problems
The share price was at 115 which equated to a market capitalization for the business of around 21 billion dollars if we now look at what’s happened to the share price over the course of the last week on the 9th of March which was the day after silvergate announced that it
Was going into liquidation the share price dropped to 96 on the 10th of March there was a further drop to 81 however on Monday the 13th of March which was the first day that the markets had opened since the announcement that Silicon Valley Bank and Signature Bank
Had both collapsed the share price fell to 31 so this represents a 4 of almost 75 percent against the share price prior to all of these banking problems now over the course of the last seven days there has been an enormous amount of volatility in the share price with the
Price falling to a low of 18 and reaching a high of 53 and the reason for that volatility is the ongoing concerns about the viability of this bank as we discussed earlier in the video First Republic has a low percentage of retail deposits so therefore it has a lot of
Exposure to corporate clients and the problem with corporate clients is that they can move all of their money out very quickly because of online banking facilities these days if a corporate decides that it’s no longer happy with your credit risk it can request that all of its funds are transferred to another
Bank so a bank run can happen very very quickly you don’t need the old-fashioned system of people queuing around the block waiting to ask the teller to hand over all of their cash in physical form these days it’s all electronic and it can happen extremely quickly and in
Addition to the low percentage of retail depositors First Republic also has a high percentage of its assets tied up in loans and bonds a hundred and ten percent of its deposits and as we’ve discussed in other videos the problem with the bond Investments That banks have been making over the course of the
Last three years is that interest rates were at very low levels as a result of the covid pandemic the FED reduced interest rates to virtually zero but over the last 12 months we’ve seen a rapid increase in interest rates and that’s left all of those look and that’s
Left all of those bonds that were issued over that period which have low interest coupons out of the money so they’re now trading below par and if a bank is forced to cash in those bonds to realize cash it means crystallizing a loss announcing that loss to the market and
That further fuels the nervousness from customers and investors so as a result of those Dynamics and the continued problems that are occurring in the banking sector on a daily basis we recently saw Credit Suisse the giant Swiss bank having to seek a 54 billion dollar bailout from the Swiss Central
Bank because this crisis is unfolding on a daily basis and nobody really knows which bank is next investors have become very cautious about the weaker Banks and unfortunately First Republic is top of the weak Bank list in the USA now this snapshot shows the share price that the
Close of play on Thursday the 16th of March and you can see that the share price was 34 however you can see that in after hours trading the shares have actually Fallen below 34 and this was after the announcement of the 30 billion bailout investors obviously were not
Impressed with that bailout the fact that it’s only a deposit of cash and it’s only committed for 120 days hasn’t really put all of their fears to bed everybody is still concerned that first Republic does have liquidity problems does have viability issues and could potentially be the next Bank to collapse
So what’s the summary and conclusion today well I wanted to post this video because the unfolding banking crisis that’s happening all across the world is really a big story for the global economy if you’ve been following the channel you’ll know that in the USA we’ve seen the failure of three Banks
Over the course of the last week it all started on the 8th of March when silvergate bank which was the specialist bank that had been providing facilities to the cryptocurrency corporates announced that it was going into liquidation after a lot of the corporates that bank there started
Removing all of their cash so there was a run on that bank that run became contagious and moved across to Silicon Valley Bank which was the bank that specialized in providing banking facilities to venture capital businesses predominantly in the tech sector a lot of those Venture Capital companies had
Actually advised their clients to remove all of their cash because they became concerned that Silicon Valley Bank was going to be the new silvergate as a result of that it became a self-fulfilling prophecy because as the money started leaving Silicon Valley bank had to start selling bonds to
Realize cash those Bonds were out of the money so they booked a loss of 1.8 billion dollars on that sale and that further fueled their liquidity problems the shares of Silicon Valley Bank were suspended on Friday the 11th of March and over the course of the weekend the
Bank collapsed and a rescue scheme was put in place where all of the deposits were moved to a bridge bank and on Sunday the 12th of March Signature Bank which was predominantly a traditional bank but did have a small exposure to the crypto markets also collapsed now as
We’ve seen from today’s video the management of First Republic have been moving very quickly to try to put facilities in place to shore up the balance sheet the first thing that they did was obtain a 70 billion dollar loan facility from JP Morgan they then secured 109 billion dollar facility from
The FED a further 10 billion facility from the federal Home Loan Bank and the latest fundraise is this 30 billion dollar deposit facility that’s been provided by 11 U.S banks so on the face of it the management team of First Republic have actually done quite it’s a good job they’ve managed to pull
Together 229 billion dollars in the space of a week that’s quite impressive but what’s less impressive is what’s been happening with the share price and the market sentiment and also the fact that the bank has announced that it only has 34 billion dollars in cash available right
Now when you take a step back and look at these figures First Republic Banks should be swimming in cash at the moment they’ve just raised 229 billion dollars and this is for a bank that has a market capitalization at the moment of around six billion dollars so this is a large
Fundraising but the fact that they’ve only got 34 billion dollars in cash compared with 175 billion dollars of customer deposits as at the end of December tells you that there are still major problems going on at First Republic right now as we discussed earlier in the video the loans and
Securities outstanding equate to a hundred and ten percent of customer deposits so the bank have been putting more than the cash that they have ad into all of these Investments and unfortunately for First Republic Bank any bonds that you’ve been investing into over the course of the last few
Years are now seriously out of the money they are underwater and as First Republic Banker not in the luxurious position of being able to sit back and wait for all of those bonds to mature and be paid back at face value it’s likely that they’re going to have to
Sell those Bonds in the market that will incur losses and that will drive down their cash position even further now I think one thing that’s remarkable about the First Republic bailouts is this 30 billion dollar deposit facility that’s been put together by the 11 Banks we’ve never seen anything like this before in
The financial markets it doesn’t really constitute a bailout because it’s a very loose commitment from all of these Banks they’ve handed over 30 billion dollars and they’ve committed to leave it there for 120 days but at the end of that 120 days all of those Banks could remove
That money now obviously these deposits are unsecured so those banks are showing their com confidence in First Republic because they’re putting their customers money at risk they’ve handed it over and they might not get it back so they’re trying to shore up everybody’s confidence they’re trying to show that
We’re happy with the risk so therefore you should be happy with the risk but when you see what’s happening to the share price that confidence isn’t really translating over to investors the share price of First Republic has fallen in the aftermarket and it’s likely that
Over the course of the next week or so we’ll see continued volatility as more concerns starts to rise all around the world as to what’s happening in the banking markets we saw Credit Suisse earlier this week having to go to the Swiss authorities and get a 54 billion
Dollar bailouts and it’s likely that we will see more Banks doing that over the course of the next month or so and First Republic remains top of the list in terms of the risk profile in the USA investors are very nervous they’ve pulled together 229 billion dollars so
Far but it doesn’t look enough it looks like they’re going to need more of a bailout and where that money is coming from I don’t know but because it looks like Janet Yellen and the FED have asked these Banks to step in and help out but they can’t help every single Bank in
America so there is a real possibility that first Republic could find itself in a liquidity crisis at some point in the next week or two and if it does then it will be very interesting to see what the reaction from the fed and the market is
Whether or not there will be an actual bailout or if this Bank could potentially collapse so hopefully you’ve enjoyed today’s video which is a bit shorter than normal but I wanted to get this information out into the market so everybody had a full update as to what’s
Going on if you’d like to have said then please give me a thumbs up and thank you for watching this video all the way through to the end and here’s the usual payoff
