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First Republic Bank files 8-K – Tech only 4% of total deposits; no sector >9%

ir.firstrepublic.com

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Re: First Republic Bank files 8-K – Tech only 4% of total deposits; no sector >9%

#211

Post by NovemberWhiskey »

scotty79 wrote: post #189
NovemberWhiskey wrote: post #42

Earlier quoted context omitted.

Glass-Steagall only prevented commercial banks from owning non-investment-grade securities - from what I have read, SVB’s portfolio (of Treasuries and MBS) would’ve been entirely consistent with pre-repeal Glass-Steagall.

So it was move in the right direction. Just didn't go far enough. Banks should not gamble with their money no matter how safe the bet seems. The only exception is issuing loans because that's one of core reasons for the bank to exist.

SVB would have failed even it held only Treasuries on its book. Those are literally used to define the risk-free rate of return. The assets were not risky. It was their duration mismatch that was the problem.

Re: First Republic Bank files 8-K – Tech only 4% of total deposits; no sector >9%

#212

Post by nostrademons »

everybodyknows wrote: post #210
anxman wrote: post #149

Earlier quoted context omitted.

I can confirm knowledge of this as well

Could those have been deposits of public funds?

The $42B that depositors pulled out of SVB has to go somewhere. FRB is the next-best-choice for many startups; they are also startup-friendly, have plenty of branches in Silicon Valley, make it pretty easy to open an account, many of these companies may already have accounts or banking relationships with them, etc.

This is one way in which the current crisis is self-limiting. It was brought about because SVB took lots of deposits when rates were low and invested them when bond prices were high, and now they don't have liquidity without taking a loss. But if banks take lots of deposits now and invest them when bond prices are low, their average cost goes down and it's much easier for them to satisfy customer withdrawals without taking large losses.

It becomes a crisis again if all the banks start failing at once, because then the likely consumer behavior is a flight to hard cash or crypto rather than another bank.

Re: First Republic Bank files 8-K – Tech only 4% of total deposits; no sector >9%

#213

Post by amluto »

fairity wrote: post #77
metacritic12 wrote: post #53

Counterpoint: This WSJ Article [1] and their latest 10Ks confirm that: - Their actual assets market-to-market (sold on the fair market) is about $26 bln less than the amount they're carried at on their books. This is as of year end 2022, probably more today. - This would wipe out all their equity, loans, and start hitting depositors. - If there was a bank run, First Republic probably would not be able to meet all dep…

All true, but they have a $60b debt facility to draw down on before they'd consider liquidating their HTM bond portfolio. Given that they have $120b in uninsured deposits diversified across a disparate client portfolio, it seems like they're truly in a much stronger position than SVB. I feel like a very likely outcome on Monday is that the FDIC announces a buyer, SVB depositors realize they're going to be made whole,…

Unless I’ve misunderstood, the FHLB credit lines charge about the interest rates you would expect. For example:

https://www.fhlbboston.com/fhlbank-boston/rates#/long-term

If a bank’s portfolio of long-term fixed income instruments has a mark to market value that is $27bn less than their hold-to-maturity value, and the bank borrows $27bn at market rates to cover the shortfall, they will pay approximately, wait for it, $27bn (present value) in net interest while waiting for maturity to happen.

If the bank can manage to borrow the money in the form of non-interest-bearing deposits for the entire term of these instruments, then, sure, they’ll end up okay, because they will effectively make enough money on these deposits to cover their losses.

But the whole industry of non-interest-bearing deposits is a bit odd. When interest rates are around 2% and banks are offering maybe 0.75% interest, it may not be worth their clients’ time to try to earn interest. But when FDIC-insured banks are paying 3-4.5%, convincing a client to keep holding $2M in a non-interest-bearing account instead of spending an hour a week shuffling assets between checking and savings is a much harder sell, and much of those $27bn of required profits may well end up in the pockets of a bank’s customers. Which makes the effective value of the bank’s equity look bad, and maybe negative, and the bank may be toast.

Put another way, if you are actually insolvent, credit at market rates cannot make you solvent unless you have some other source of profit.

Re: First Republic Bank files 8-K – Tech only 4% of total deposits; no sector >9%

#214

Post by nostrademons »

gonehome wrote: post #24
Dr_Birdbrain wrote: post #9

Earlier quoted context omitted.

Matt Levine reports that the reason they had to buy those low-yield investments that plummeted is because it’s tech-sector customers had too much money in the boom times. Too much deposits means they need to buy a lot of something , and in the boom times that was low-yield stuff.

Sort of the other way to handle it would be to say “we can’t find risk-free yield for the volume of cash we just had deposited, so deposits now get 0.8% instead of 1.0%” Which is kinda fine? Means you might lose some business as others chase yield. But I feel like most startups don’t actually have that much cash in the bank so they shouldn’t really be chasing yield anyway. It didn’t take a genius to predict interest…

They would've had to go to 0%. As cormacrelf mentions, short-term treasuries in 2021 were yielding Some banks did exactly that. Even now, when SVB is advertising 4.5% rates on business checking [1], First Republic Bank is offering 0.01% on Business Interest Checking [2]. But note that SVB's failure impacts all sorts of household names like Roku, Roblox, Coinbase, Stripe, while FRB reports that tech is only 4% of their business. Companies that don't offer yield lose out to companies that do in the yield-chasing competitive marketplace.

We're observing some form of anti-survivorship bias, where risky behavior was incentivized by the market, so market participants had to engage or get pushed out of the market, and so now we hear about the risky behavior because that's what failed. We're not talking about banks like FRB or Wells Fargo that offer 0% on their bank accounts.

[1] https://www.svb.com/business-banking/business-checking

[2] https://www.firstrepublic.com/current-deposit-rates?rateType...

Re: First Republic Bank files 8-K – Tech only 4% of total deposits; no sector >9%

#215

Post by incrudible »

bradleyjg wrote: post #182
lordnacho wrote: post #169

Earlier quoted context omitted.

That got me wondering why anyone leaves amounts over 250k anywhere else. If you have 5m are you going to open 20 bank accounts? If there's a wobble you'll need to dig out a lot of credentials to move your money, and you'd end up moving it to a TBTF anyway.

If you have $5 million why do you need it in demand accounts? Treasuries (notes, etc) are backed by the full faith and credit of the USG and are available in effectively unlimited amounts.

The value of your treasuries will tank if interest rates rise. If you held cash, you could take advantage of that situation.

Re: First Republic Bank files 8-K – Tech only 4% of total deposits; no sector >9%

#216

Post by breck »

ZephyrBlu wrote: post #127
breck wrote: post #112

Earlier quoted context omitted.

1. I don't have much to gain from such a thing, but someone in the know might have tremendous amount to gain. Hence the `if anyone wants to fund it`. It would have to be worth my while. 2. Yes, I am that good and could certainly build it. My tech is magic. I can turn any complex domain into the simplest form possible.

> Yes, I am that good and could certainly build it. My tech is magic. I can turn any complex domain into the simplest form possible Sure grandpa, let's get you to bed.

> bed

What's a bed? I sleep on a pile of keyboards and my body sends pull requests while I sleep.

Re: First Republic Bank files 8-K – Tech only 4% of total deposits; no sector >9%

#217

Post by labcomputer »

raywu wrote: post #205
zamnos wrote: post #158

Earlier quoted context omitted.

Confusingly, the two banks you named are JP Morgan Chase, and Morgan Stanley. JP Morgan Chase is the biggest bank there is, but Morgan Stanley is far smaller (but still ginormious) and doesn't rank in the top 10 banks. The top 3 banks are JP Morgan Chase, Bank of America, and Citigroup. https://www.insiderintelligence.com/insights/largest-banks-u...

Morgan Stanley is for wealth management. Chase for retail.

Within JPM Chase, the "JP Morgan" or "JP Morgan Private Bank" brand is used for (V)HNWI banking and the "Chase" brand is for retail (although Chase does have a Chase Private Client arm for almost-HNWIs). Due to the nature of catering to VHNWIs, "JP Morgan" of course offers wealth management services.

Morgan Stanley is a completely different company with no (current) ties to JPMC.

The reason JPMC and M-S share the name "Morgan" is because the investment and retail sides of the bank were split during the Great Depression due to Glass-Steagall, almost 100 years ago.

Re: First Republic Bank files 8-K – Tech only 4% of total deposits; no sector >9%

#218

Post by iEchoic »

WWLink wrote: post #142
bombcar wrote: post #110

Earlier quoted context omitted.

This is mainly but not limited to trying to prevent a bankrupt entity from “getting rid” of all its assets. I don’t know if it would apply to a bank wire transfer of “your own money” unless it was a literal fraud situation (pyramid scheme).

I can't imagine that going well. "No we're taking your $50k life savings back so we can give it all to a client that had $5mil and deserves your $50k life savings more than you do"

Check out the Madoff documentary on Netflix, there are interviews with people who had exactly that happen as they clawed back funds to try to make everyone whole.

Re: First Republic Bank files 8-K – Tech only 4% of total deposits; no sector >9%

#219

Post by okhobb »

jgalt212 wrote: post #180

This is all the fault of the fed and ZIRP. It's the S&L crisis all over again. Any bank that has not hedged their interest rate exposure is a lot of trouble right now. I don't want to claim zero big banks are in trouble, but I would claim that zero big banks are in trouble due to unhedged interest rate risk.

This might be downvoted due to the FED finger point, but that aside it is exactly right. A responsible banker would have invested in floating-rate securities or hedged the fixed-rate risk via interest rate swaps. SVB was certainly sophisticated enough to know this.

Re: First Republic Bank files 8-K – Tech only 4% of total deposits; no sector >9%

#220

Post by scotty79 »

roflyear wrote: post #207
scotty79 wrote: post #193

Earlier quoted context omitted.

The difference is, who created the risk. When you buy asset from someone else you are buying the risk someone else has created. So you have more risk. Banks are very unique institutions that are allowed to do things no other business is allowed to do. They also should be equally severely restricted so they can't acquire any additional risk they themselves didn't create. Banks are risk sources in the economy, the risk…

If you can't trust them to buy good assets you sure can't trust them to issue them

You can trust them because if they issue a loan they shouldn't be able to sell it.
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