First Republic Bank’s crisis follows the collapse of Silicon Valley Bank last week and Signature Bank on Sunday. (Photo: Reuters)
First Republic Bank serves clients similar to Silicon Valley Bank, and it has wealth management affiliates that provide investment and wealth management services.
After two lenders in the US, Silicon Valley Bank (SVB) and Signature Bank, have already collapsed, another lender First Republic Bank It is also facing the same fate as its share has fallen over 70 per cent in last five trading sessions. Rating agencies S&P and Fitch have also cited risks in funding and liquidity of First Republic Bank.
What is First Republic Bank?
First Republic Bank, headquartered in San Francisco, is the 14th largest bank in the US by assets with $212 billion by the end of 2022. Established in 1985, the bank is known for its personal banking and private business banking services. , It serves clients similar to those of Silicon Valley Bank (SVB), and has wealth management affiliates that provide investment and wealth management services.
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Although the lender also has a presence on the East Coast, including New York and Florida as well as western states such as Washington and Wyoming; The majority of the bank’s “affluent” customer base is concentrated in coastal urban areas.
About 70 percent of First Republic Bank’s deposits are above the average of 55 percent for mid-sized banks, according to a Bank of America note, and the group is the third largest behind Silicon Valley Bank and Signature Bank.
According to S&P Global Ratings, 68 percent of the bank’s accounts have deposits of more than $250,000, a level automatically guaranteed by US regulators.
The First Republic Bank Crisis
Rating agencies including S&P and Fitch have flagged risks to First Republic Bank’s funding and liquidity. Amid bank transition fears following the collapse of SVB and Signature Bank, First Republic’s shares saw a massive selloff of over 70 percent in just five days.
Fitch downgraded First Republic Bank to ‘BB’ and placed it on negative watch. It said First Republic’s deposit concentration was seen as rating weakness. The rating agency said First Republic’s funding and liquidity profile has changed and represents the “weakest link” relative to other rating factors.
The agency said its rating action reflects a revised view of First Republic’s funding and liquidity profile in the current environment. It also stated that a negative watch indicates the potential for a further rating downgrade for the First Republic.
Similarly, rating agency S&P Global Ratings also kept First Republic’s rating on Creditwatch negative, indicating low confidence in the lender’s financial strength.
relief measures
Even though America’s third bank is on the verge of collapse within a week, the nation’s biggest banks have come together to shore up First Republic. A group of 11 US private banks including Citigroup, Bank of America and JPMorgan Chase have announced that they will deposit $30 billion in First Republic.
Following the relief measure, the bank’s shares saw a rally of around 10 per cent during the day on Friday. However, shares of First Republic Bank are still down 50 percent over the past five days, and down nearly 73 percent in a month.
First Republic Bank’s crisis follows the collapse of Silicon Valley Bank last week and Signature Bank on Sunday. The FDIC, or Federal Deposit Insurance Corporation, insures bank deposits of up to $250,000 for individual accounts.
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