First Republic Bank executives tried to allay fears following the collapse of Silicon Valley Bank last week.
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Bank of the First Republic
worked overtime on Sunday to reassure customers about the safety of his company after the collapse of Silicon Valley Bank last week reignited contagion fears in the banking sector.
Early Sunday night, First Republic executives issued a statement highlighting the “continued strength” of its capital, liquidity and operations. But that wasn’t all.
Shortly after the release of First Republic, the Federal Reserve unveiled a new Bank Term Funding Program (BTFP), which would allow banks to better manage their liquidity. In addition to the BTFP, the Fed also said it is easing conditions during its discount period, allowing lenders to take short-term loans to meet their liquidity needs.
Apparently the Fed’s terms were too good to pass up. Later on Sunday, First Republic (ticker: FRC) said it has “further improved and diversified its financial position” through additional liquidity from
JPMorgan Chase
(JPM) and the Fed. First Republic’s total available, unused liquidity is now more than $70 billion, the bank said. This is more than the $60 billion announced earlier Sunday. The bank added that this new amount does not include funding it is eligible to receive under BTFP.
“First Republic’s capital and liquidity positions are very strong, and capital remains well above the regulatory threshold for well-capitalized banks,” Chairman Jim Herbert and CEO Mike Roffler wrote late Sunday.
At the end of 2022, First Republic had $176.4 billion in deposits, according to regulatory records.
Shares of the San Francisco-based bank swooned last week during the collapse of Silicon Valley Bank, with shares of First Republic plummeting as much as 50% during Friday’s trading session before falling 15% for the day. While the bank isn’t as focused on the embattled startup and venture capital industry as Silicon Valley Bank is, investors are concerned about its concentrated, wealthy deposit base that could turn their savings into higher-yielding products. , eroding a cheap source of funding for the bank.
Jon G. Arfstrom, director of research at RBC Capital Markets, called the announcement “positive news for First Republic,” especially in light of announcements Sunday by federal regulators supporting uninsured depositors at Silicon Valley Bank and Signature Bank.
“Overall, the regulatory and treasury decisions to make depositors whole in recently failed banks and allow qualified institutions access to collateralized lines of credit should inspire near-term confidence in funding and liquidity conditions for FRC and the industry Arfstrom wrote.
Going into the weekend, analysts acknowledged the challenges facing First Republic, but stressed that comparisons to Silicon Valley Bank were exaggerated.
“We believe FRC is not a SIVB,” Erika Najarian, an analyst at UBS, wrote in a note Friday, maintaining her buy rating on the stock.
As of February 2022 — the most recent data — venture capital and private equity deposits accounted for 8% of First Republic’s business, while it accounted for 52% of Silicon Valley Bank’s deposit base, Najarian wrote. Also, First Republic’s available-for-sale portfolio was 1.7% of earning capital at the bank, while it was 14% at Silicon Valley Bank.
Still, Najarian acknowledged that while First Republic is better positioned than Silicon Valley Bank, in this environment of rising interest rates, it will likely still be under pressure from the narrowing net interest margin (NIM).
“We emphasize that NIM sniffles are not the same as business model/strategic/balance sheet management issues,” Najarian wrote.
While First Republic may not have an easy road ahead, Wall Street hopes cooler heads prevail.
Write to Carleton English at [email protected]
