Is another domino about to fall? Our system was greatly shaken when Silicon Valley Bank and Signature Bank suddenly collapsed, but we seem to have weathered that storm.
But what will happen if an even larger bank goes under? As of March 31st, First Republic had approximately 290 billion dollars in assets, and that makes it much larger than Silicon Valley Bank was when it finally imploded. A 30 billion dollar rescue plan that was hastily put together last month was supposed to stabilize First Republic, but that hasn’t worked. On Tuesday, First Republic shares fell by about 50 percent after the public learned that “customers withdrew more than $100 billion during last month’s crisis”…
First Republic Bank’s shares plunged 50 percent after a ‘troubling’ earnings call where company executives refused to answer questions. The stock dropped Tuesday after it emerged that customers withdrew more than $100 billion during last month’s crisis, with fears swirling that it could be the third bank to fail in quick succession after the collapse of Silicon Valley Bank and Signature Bank.
Unfortunately for First Republic, the carnage continued on Wednesday.
Let me try to put this into perspective.
On February 2nd, First Republic stock closed at $147.00.
Today, it closed at $5.69.
That is what a collapse looks like.
The reason why this is happening is because costumers have been pulling their money out of First Republic at a pace that is absolutely staggering. In fact, it is being reported that First Republic lost 40 percent of their total deposits in the first quarter alone…
This week’s drop for First Republic comes after the San Francisco-based lender late Monday said it lost roughly 40% of its deposits in the first quarter. First Republic was seen by customers and investors alike as a risky bank after the collapse last month of Silicon Valley Bank, which had a similar financial profile.
And if 11 of the largest banks in the country had not agreed to collectively deposit 30 billion dollars of their own money in First Republic last month, that figure would have been closer to 50 percent…
But those deposits include the $30 billion that 11 large banks deposited at the bank in March to prop it up and keep contagion from spreading. Without this influx of $30 billion, deposits would have dropped by 50%. So this was really nip and tuck.
Unfortunately, that rescue plan was not nearly large enough, and so now First Republic plans to beg those banks for even more help…
The best hope for avoiding a collapse of ailing lender First Republic hinges on how persuasive one group of bankers can be with another group of bankers. Advisors to First Republic will attempt to cajole the big U.S. banks who’ve already propped it up into doing one more favor, CNBC has learned. The pitch will go something like this, according to bankers with knowledge of the situation: Purchase bonds from First Republic at above-market rates for a total loss of a few billion dollars – or face roughly $30 billion in Federal Deposit Insurance Corp. fees when First Republic fails.
I think that those large banks would be quite foolish to throw more good money into the First Republic black hole, but we shall see what happens.
In addition to pleading for assistance, First Republic also plans to lay off thousands of employees…
The bank says it plans to sell off unprofitable assets, including the low-interest mortgages that it provided to wealthy clients. It also announced plans to lay off up to a quarter of its workforce, which totaled about 7,200 employees at the end of 2022.
Will all of this be enough to turn First Republic around?
Of course not.
As one expert explained, if First Republic still had any good options left “they would have pursued them already”…
Kathryn Judge, who works as an analyst at Columbia Law School, said that there is no easy solution for First Republic. ‘If there were attractive options, they would have pursued them already,’ she told the Times.
Meanwhile, the overall economy continues to deteriorate all around us.
On Wednesday, Amazon conducted layoffs in their cloud computing and human resources divisions. Sadly, these new job cuts are just the latest wave in “the largest layoffs in Amazon’s 29-year history”…
The layoffs are part of the previously announced job cuts that are expected to affect 9,000 employees. Last week, Amazon laid off some employees in its advertising unit, and it has let go of staffers in its video games and Twitch livestreaming units in recent weeks. Amazon wrapped up a separate round of cuts earlier this year that affected approximately 18,000 employees. Combined with the cuts this month, it marks the largest layoffs in Amazon’s 29-year history.
Amazon is one of the wealthiest and most prosperous companies in the entire country.
If they have decided that it is necessary to conduct multiple mass layoffs because the economic outlook is so grim, what kind of signal does that send to everyone else?
In recent months, Google, Microsoft, Disney, Walmart and countless other large corporations have ruthlessly pruned their payrolls.
But don’t worry.
Joe Biden says that the economy is going to be just fine.
You believe him, don’t you?
Don’t let anyone fool you.
The economic meltdown that we have been waiting for is here, and it is going to be incredibly painful.