2023-04-25 23:15:38
Since the failure of Silicon Valley Bank, Wall Street hoped that the crisis of small banks, hit by rising rates, was overcome. This is clearly not the case as evidenced by the rout of First Republic Bank, a small wealth management establishment in San Francisco (California), one of whose famous clients is Mark Zuckerberg, the founder of Facebook.
On the stock market, the company’s share fell, Tuesday, April 25, by 50%. In two months, the value of the company fell from more than 50 billion dollars (45 billion euros) to less than 3 billion dollars. In question, the announcement the day before by the bank that its customers had withdrawn during the winter crisis more than 100 billion dollars in deposits: these left only 75 billion dollars in its coffers.
This panic, higher than that observed in similar establishments, is explained by the fear of the customers of a bankruptcy of First Republic Bank and an evaporation of their funds – the federal guarantee does not go beyond 250,000 dollars . In addition, savers are emptying their current accounts to invest in money market products remunerated at risk-free rates above 4%.
The First Republic Bank, which had 7,200 employees at the end of December 2022 and intends to part with nearly a quarter of them, claims to have 45 billion dollars of cash available or mobilized today, which should allow it to make face additional withdrawals of unsecured deposits.
Defiance
In reality, its survival is at stake. Its leaders have declared that they “explored strategic options” to strengthen the bank, without providing details. According to Financial Times (FT), the establishment is seeking to sell all or part of itself to avoid bankruptcy and is in contact with the federal authorities.
“The Biden administration is increasingly concerned that the bank is running out of time to reassure depositors and investors”Write the FT. “First Republic joins the living dead”title for its part the Wall Street Journalwho believes that the company, founded in 1985, “may survive but not thrive for the foreseeable future due to the costs of its rescue”.
The defiance was heightened by Monday’s conference call, when First Republic Bank executives refused to take questions from financial analysts.
A panic should lead to chain losses. The company also has a large portfolio of long-term municipal bonds, the sale of which would likely generate large losses. In mid-March, it had already received liquidity to the tune of 30 billion dollars, injected by the main American banking establishments led by JP Morgan, under the supervision of the Federal Reserve (Fed, central bank) and the Treasury. It had also suspended the payment of its dividends, a precautionary measure but which had hardly reassured the markets.
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