U.S. Officials Holding Urgent Talks to Rescue First Republic
Troubled First Republic Bank (FRB) stock fell another 40% on Friday, leading to panic. Members of the FDIC, Treasury Department, Federal Reserve, and other U.S. government agencies are holding urgent discussions about a rescue plan for the troubled First Republic Bank (FRB). FRB stock dropped more than 90% since it reported $102 billion lost in deposits on Monday.
Following the collapse of Silicon Valley Bank (SVB) and Signature Bank in March, FRB has lost 96.5% of its stock value. The FRB stock price the day before the SVB collapse was $106.42. Today (at writing) is trading at $3.38. The price has fallen an additional 5% in the time it took to write the previous paragraph.
The government agencies are trying to find a solution that is not FDIC receivership. Following the SVB and Signature collapse, several larger banks deposited $30 billion into FRB as an emergency rescue measure. Since Tuesday, FRB has been trying to sell $50-100 billion worth of securities to those banks above market value. FRB attempted to convince the banks to pay above market value as the lesser of two evils; the argument was "lose a few $billion now, or $30 billion in FDIC fees later." The other banks want to avoid getting involved any further. The consensus is that it would be "throwing good money after bad."
FRB caters to wealthy clients on the coast. At the end of 2022, FRB held $176 billion in deposits. $102 billion, more than half of that, was reportedly withdrawn in Monday's 1st quarter report. The $30 billion from the other banks is part of a lifeline package. FRB also borrowed $92 billion from the Federal Reserve and government-backed lending institutions, essentially transforming all remaining deposits into loans.
The situation has become an untenable position for stockholders. FRB is paying more for its loans than receiving from many of its assets. Analysts believe the bank will experience at least a year of losses. The sad irony of the situation is that FRB bank executives touted ample cash reserves in Monday's report. Still, it appears they may have lied or misled their investors.
What does it mean?
For some crazy reason, the financial world forgot the first lesson of economics: there is no such thing as a free lunch. In other words, every choice has consequences, and everything has a price or trade-off. FRB wants more than a free lunch. It wants free food for a year. It takes an incredible amount of hubris to go to your competitors and insist they forfeit $billions so you can keep your shareholders happy and executives rich.
FRB may be the story of the day but not the story of the year. The Social Science Research Network reported 186 U.S. banks at risk of collapsing in 2023. SVB, Signature, Silvergate, and Credit Suisse collapsed in the last two months. The news may break over the weekend that the First Republic is the next bank to fall. If it's not this weekend, something will happen soon. It may not be an FDIC takeover, but a restructuring will undoubtedly occur. The question is, which bank will be next? How far across markets will bank troubles extend?
Despite some dishonest marketing in the precious metals industry, precious metals are a defense. They won't make you rich overnight. Precious metals protect what you have and store value outside of paper backed by broken politician promises. Gains are bonuses, but making money from price movement in the paper market is more accessible. Precious metals should not be a paper market strategy. There are many warnings for paperbacked assets and holding excess Dollars in a bank. One hundred eighty-six banks could collapse this year! Why would anyone wait even one more day before shoring up their portfolios with a healthy amount of precious metals?