In March, the feds took over Signature Bank and SVB, two history-breaking bank failures, bailing out depositors in the process while it now appears First Republic may soon join the pity party.
According to the WSJ, other lenders [JP Morgan & PNC] are looking to buy the bank after the FDIC takeover.
How Did This Happen?
The depositors at First Republic saw the catastrophic failures at Signature Bank and Silicon Valley Bank and were admonished to get out while they still could.
First Republic engaged in the same risky business as many other regional banks like investing depositor cash in assets that were recently devalued due to interest rate hikes.
This regional bank thrived in earlier days because of its aggressive growth strategy of pursuing wealthy clients.
This would come to bite them in the arse during hard times because two-thirds of its depositors carried a balance above $250K so they knew when ish hit the fan the FDIC wouldn’t be able to guarantee all of their cash.
The Depositor Panic
First Republic clients pulled more than $100 billion from their accounts in the first quarter of 2023, leaving it with a 40% reduction in deposits.
The big boys at JP Morgan Chase and Bank of America threw their bluefaces [$30B to be exact] into the fire last month hoping it would calm the flames, but this only had an ephemeral effect.
First Republic reported shoddy quarterly results causing its stock to plummet putting it at a 97% loss since the start of 2023.
As U.S. officials debate a private-sector deal versus FDIC receivership, depositors are still wondering who will come to their rescue when First Republic fails.