The share of the bank, which was established in San Francisco in 1985, and ranked fourteenth in the list of the largest American commercial banks at the end of last year, witnessed a decline of more than 90 percent, from the beginning of 2023 until yesterday’s closing, after the decrease in the volume of its deposits exceeded the barrier of $100 billion.
dark tunnel
It is unlikely that the bank will survive its current slump, as depositors will not return again in the near future, says economist Peter Tans, head of Lynx Economics Consulting.
He added, in his interview with the Sky News Arabia economy website, that the loan portfolio is not of sufficient value to warrant a bailout from the regulators, stressing that the bank’s shareholders may be negatively affected by the bank’s complete bankruptcy in the coming days.
He points out that the US banking sector is solid, however, no bank can survive the crisis of withdrawing deposits, so it is clear that there is an element related to the psychology of dealers.
“The Fed has so far justifiably protected depositors at all levels, not just at the FDIC’s $250,000 limit, and the FDIC must now take measures to ensure that banks have matching assets and liabilities — consistently,” says Tans. Close – with their due dates.
The head of Lynx Economic Consulting expects that the current turmoil will impose more reliable supervision in the future by US bank regulators (the Federal Deposit Insurance Agency and the National Credit Union Administration).
Disappointing features
The economist and specialist in American affairs, Sharif Othman, suggested that the First Republic Bank would meet the fate of its predecessors in bankruptcy during the coming period, especially in the event that there is no buyer for the bank soon.
He explained, in statements to “Sky News Arabia Economy”, that US officials have not yet shown a desire to help the bank in an unusual way to get it out of its current crisis, describing the support that has been provided since the beginning of the crisis as “insufficient.”
The First Republic Bank, known for having a large mortgage lending business, and a large group of wealthy clients, many of whom had saved more money with the bank than the government would guarantee.
The bank received support worth $ 30 billion from a group of 11 private banks in the United States, including Citigroup, Wells Fargo, Bank of America and JPMorgan Chase, as the First Republic benefited from the emergency steps taken by US regulators, which were It aims to save the banking sector from collapse.
Since then, and after the collapse of Silicon Valley and Signature banks, the bank’s management began to take measures to strengthen its business and restructure its balance sheet, as these measures include:
- Increase in insured deposits
- Reduce borrowing from the Fed
- Reducing loan balances to correspond with lower reliance on uninsured deposits
The bank will take steps to reduce expenses, including:
- Significantly reduced executive compensation
- Reducing non-essential projects and activities
- Reducing its workforce by between 20 and 25 percent during the second quarter of 2023.
People’s misfortunes
For his part, the economist and specialist in American affairs explains that the most likely scenario is that the buyers wishing to acquire the bank will not present a good opportunity for them, as the implementation of the bank’s closure approaches, and therefore this represents an ideal time to make a greater profit from the deal.
Othman expects that the impact on the global economy will be limited if the crisis worsens and the bank is actually closed, as it is related to some problems in the bank’s asset structure, and perhaps a few that do not exceed the fingers of one hand from other regional banks.
He points out that large banks are far from the problem, and have benefited from it positively, by transferring anxious clients to their money from regional banks to them, which was clearly evident in their quarterly business results at the end of March; Most of them were better than expected, for that reason.
The crisis resulted in the sale of Swiss banking giant Credit Suisse to UBS, after it saw 61.2 billion Swiss francs ($69 billion) of deposits withdrawn in the first three months of the year.
Assets managed by the Wealth Management Department at Credit Suisse fell to 502.5 billion francs at the end of last March, compared to 707 billion francs for the corresponding period of 2022.
Technical indicators
From the point of view of technical analysis, the financial market expert, Muhammad Yunus, explains that the impact has been limited since the beginning of the crisis on the financial markets, and on the US market indices, whose futures contracts resumed their bullish performance today, Thursday, which means that there is no significant negative impact on the crisis.
And he indicates in statements to “Sky News Arabia Economy” that the Dow Jones Industrial Average and S&P 500 still have strong upward targets, which have not yet shown any signs of their decline in the near term, despite the current occasional performance.
He says: “Since the first news of the collapse of Silicon Valley Bank last March, the market dealt with it normally and there was no significant negative impact on performance, as investors absorbed the negative news, and stocks resumed their upward performance naturally.”
The problems in the US banking sector came to light earlier last month when Silicon Valley Bank, the country’s 16th bank, collapsed in the biggest US bank failure since 2008. This was followed two days later by the collapse of Signature Bank in New York.
Yunus says that the situation in the 2008 crisis was completely different from what it is now, and it seems that even in the event of the bankruptcy of the First Republic Bank, the crisis will not be large and with difficult repercussions on the American banking sector.
But despite the intervention of the authorities; To guarantee deposits above normal limits in an effort to avoid further bank deposit withdrawals, the Federal Deposit Insurance Corporation has estimated the cost at nearly $20 billion.
Central banks around the world, including the US Federal Reserve and the Bank of England, sharply raised interest rates in their attempt to curb inflation, but these moves hurt the values of large portfolios of bonds that banks bought when interest rates were low, which caused In the current crisis of banks.
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