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First Republic Bank files 8-K – Tech only 4% of total deposits; no sector >9%
- TMWNN 4y agoThe title is mine; given that this is an 8-K filing, there is no built-in title. First Republic Bank, a San Francisco regional bank that's seen its stock affected by the Silicon Valley Bank collapse and is often compared to SVB, filed this with the SEC today (Friday) to reassure investors (and clients) that its situation is different from SVB's.
- JshWright 4y agoI’m not super well informed about this space, but my understanding was that SVB’s issue wasn’t that its depositors were from the tech sector, but rather that it had put a ton of capital into investments that are significantly less valuable (on the open market today) now than they were a year ago due to increasing interest rates. I’m curious how the tech sector matters here specifically?
- Dr_Birdbrain 4y agoMatt 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.
- bsder 4y agoI'd also like to point out that VCs were telling all their portfolio companies "Pack it in and conserve cash as you're not getting another round." That caused a lot of companies that would otherwise have put their cash into an investment vehicle to instead hold it in their accounts. It will also be interesting to see if someone is going to wind up in jail for initiating the bank run. Someone shared confidential info that started this whole thing.
- Dr_Birdbrain 4y agoWas it confidential info? The public earnings call was three days ago, investors didn’t like what they saw and the stock went into free fall, then the run started yesterday. I think insiders might not even have realized how bad their balance sheet looked. On the earnings call the CEO was talking about how much he likes cycling to de stress, etc
- gonehome 4y agoSort 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 rates were going to rise. Locking cash away for 10yrs in very low % return vehicles seems stupid?
- khuey 4y agoYeah I don't see why SVB couldn't have just rolled billions in short term T-bills instead.
- cormacrelf 4y agoBack in 2021 short term T-bills gave you less than 0.1% yield, hitting an all time low of 0.04% for some timeframes. The bonds they bought gave them 1.5% annual return. The banking regulations didn’t prevent them buying the ones they did. So yeah. That’s why.
- sroussey 4y agoYeah, I would not have done it. You always go short maturity at low rates. Unless you are borrowing, then the opposite. Depositors weren’t getting anything. I’m guessing SVB wanted yield for shareholders.
- stephen_g 4y agoThat’s a sign of mismanagement if true. Commercial/retail banks (as opposed to investment banks) usually make basically all their money on lending. Deposits (as liabilities) need to be so low risk that they basically don’t do much more than break even.
- asimpletune 4y agoI think they were paying interest on accounts, and it was actually becoming substantial especially as deposits increased so much.
- dannyw 4y agoThe investments were long term treasuries and mortgage backed securities, yielding about 1.6%? As rates have increased, long duration treasuries and MBSes are now worth 20-30% less.
- JshWright 4y agoRight, that bit all makes sense. What was less clear to me (though sibling comments have since clarified) is why the depositor sector matters.
- deleted 4y ago[deleted]
- zenmacro 4y ago[dead]
- NovemberWhiskey 4y agoIt matters because recent underperformance in the sector led to the initial deposit outflows in the first place. If you’re concentrated heavily in a single sector, you’re likely to see higher correlations in the behavior of your depositors.
- cormacrelf 4y agoRead Matt Levine’s column from today. https://www.bloomberg.com/opinion/articles/2023-03-10/startup-bank-had-a-startup-bank-run https://www.bloomberg.com/opinion/articles/2023-03-10/startu... The tech sector isn’t an issue in itself, it’s that (1) all their deposits all came in at once because it’s one sector, so there was a huge demand surge for deposit interest, leading to a supply shortfall of loans they could issue and hence kinda desperately parking the money somewhere, which ended up putting their risk balance off kilter (bonds with interest rate risk); (2) all of their depositors (aka creditors) talk to each other and listen to the same people, so bank runs happen really fast. Compare this to First Republic bank: demand for deposit interest does not surge dramatically because there is finite liquid cash needing to be deposited and so one sector getting a cash infusion comes at the cost of another. It smoothes out. Plus their customers don’t all talk to each other and behave like worst-case bank runners. All sectors are pretty highly correlated in the cash they have on hand and how they behave with it. It would be equally risky to be a bank that only deals with oil companies. Nevertheless it offers efficiencies for acquiring new customers and new business, so banks do it.
- somsak2 4y agohttps://archive.is/Ger2q https://archive.is/Ger2q
- ummonk 4y agoThe tech sector has been withdrawing money in aggregate (because they continue paying payroll and rent but haven't been raising as much money recently) which increases liquidity pressure, and furthermore tech depositors are more skittish due to experience with FTX and thus prone to panic bank runs. They also have larger average account sizes, way beyond FDIC limits, which makes them more likely to need to withdraw money to protect their cash. SVB did have some issues with losses but they likely were still solvent; the bigger issue was just a lack of liquidity and a sudden bank run - 45 billion (out of ~175 billion in deposits) was withdrawn in a single day before they ran out of liquidity.
- cjbgkagh 4y agoHuh, so at least one quarter of depositors will get 100% on the dollar.
- karmicthreat 4y agoProbably not if the assets are short. The FDIC can claw back withdrawals from what I understand.
- pishpash 4y agoHow can they claw back withdrawals?
- digitaltrees 4y agoThe bankruptcy code provides guidance for a 90 day look back period from the date of insolvency where transactions can be clawed back or must be repaid. The FDIC will talk to the recipient bank and get a court order to deposit the funds in to a trustee account so that all available assets can be distributed evenly and fairly.
- twblalock 4y agoThey are very unlikely to do that to normal individual account holders. It would undermine the purpose of providing the deposit insurance in the first place.
- deleted 4y ago[deleted]
- scotty79 4y agoWhy are banks even allowed to buy assets? Every asset is a risk. Banks should have right to do exactly two things. Keep their customers saving and issue loans. There's plenty of risks even in that activity. Every other thing bank does is just piling up risk to unreasonable levels.
- nemo44x 4y agoI think this was a weird thing where deposit demand was so much greater than loan demand. They had too much money and thought they were doing a safe thing. But failed to consider the time aspect and how rapid interest rate increases nuke them. Banks do provide a valuable service and having them reject deposits isn’t a solution.
- NovemberWhiskey 4y agoI have literally no idea what the treasury people at SVB could have been thinking.
- nemo44x 4y agoProbably about their bonus.
- scotty79 4y agoInvesting money is never a safe thing. They should just sit on it.
- Mimlitsch 4y agohttps://en.wikipedia.org/wiki/Glass%E2%80%93Steagall_legislation https://en.wikipedia.org/wiki/Glass%E2%80%93Steagall_legisla...
- NovemberWhiskey 4y agoGlass-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.
- gerad 4y agoThe big concern is the contagion spreading. All banks are vulnerable to failure if deposits are taken out quickly, especially in this market where assets have taken a huge hit over the last 12 months. FRB wants people to believe the contagion is limited to tech and that they have limited exposure to it, so that folks don’t take deposits out en masse. If people start to think that it’s unstable, then they’ll take money out and it’ll be a death spiral like SVB.
- sroussey 4y agoIf people don’t get their access to their cash by Monday (or a week later at latest), then any rumor of liquidity issues at any bank will lead to a bank run. Once you know / experience it, bank runs feel like a legit thing to do.
- ptero 4y agoFDIC insures $250k per account, so most retail clients have no reason to bolt, which provides a lot of stability for traditional banks.
- bombcar 4y agoThese issues are all going to be at business banks (and even larger banks that do both business and normal are often actually separate entities).
- vineyardmike 4y agoTrue, but can you imagine having rent money in your account when the bank collapses... edit: apparently getting your money is fast and easy
- Caligatio 4y agoFDIC takes almost no time. From their website (https://www.fdic.gov/consumers/consumer/news/cnfall14/misconceptions.html https://www.fdic.gov/consumers/consumer/news/cnfall14/miscon...): The FDIC almost always pays insured depositors within a few business days of a closing, usually the next business day. Payment is made either by providing each depositor a new account at another insured institution or by issuing a check to each depositor.
- metacritic12 4y agoIf First Republic could say they could meet all depositor demands, they would have. But instead this is the most they can say to stave off a run. And to their credit, the fact that they're not tech heavy means the tech firms pulling from SVB aren't likely as scarred and pulling from First Republic. But First Republic has a ton of HNWIs too who are not insured. This isn't Bank of America serving mom and pops, it's rich people who will pull and are uninsured by FDIC.
- obblekk 4y agoThe fact that they filed a last minute report on a Friday night speaks volumes about the amount of withdrawals they must be experiencing. This is about as strong as a signal they could put out to stop a possible run.
- alfalfasprout 4y agoStrangely I’ve heard about a lot of deposits to first republic in the last 24 hours. It’s unclear your assumption is correct.
- anxman 4y agoI can confirm knowledge of this as well
- somsak2 4y agoi cannot confirm this
- everybodyknows 4y agoCould those have been deposits of public funds?
- nostrademons 4y agoThe $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.
- MrFoof 4y agoIn general, if anyone wants to go through all the recent 8-K filings, this is what SEC EDGAR is for. Here's a link that'll bring up all recent 8-K filings by date and time, descending: https://www.sec.gov/cgi-bin/browse-edgar?action=getcurrent&datea=&dateb=&company=&type=8-K&SIC=&State=&Country=&CIK=&owner=include&accno=&start=0&count=40 https://www.sec.gov/cgi-bin/browse-edgar?action=getcurrent&d... In general, I would expect a ton of 8-Ks on Monday the 13th for companies to release information on their exposure to SIVB, particularly if their exposure is minor or non-existent.
- bagels 4y agoThanks for that, was browsing around to figure out how to sort by date. Probably a lot filed today/monday that look like this: Kintara Therapeutics, Inc. confirms that it does not hold any deposits or securities or maintain any accounts at Silicon Valley Bank.
- TMWNN 4y agoThanks for that. I find it interesting that so many of the companies filing SVB-related 8-Ks (even if to say "we have no/minimal deposits with SVB") are biotech/pharma. Traditional tech gets most of the attention, but SVB has been the Bay Area's biotech banker as much as anyone else, and thanks to its specialized wine practice is probably even more dominant in that sector.
- auntienomen 4y agoThey have north of $1B in fine wine assets in their list of collateral! Presumably vinyards and maturing vintages.
- TheHumanist 4y agoYour last line is key... The silent ones are who you should be concerned about, most likely.
- sroussey 4y agoSame with startups. If you are an investor and not that company’s first call, then one of two things happen: email saying not exposed, or silence as they work through things.
- _blz2 4y agoMakes 'Tech' look like a hot potato no one wants a piece of. Fun times.
- deleted 4y ago[deleted]
- remote_phone 4y agoThe main issue is no longer tech. It’s whether or not they have HTM assets that will bring them under if they have a run on the bank. A lot of the depositors are rich Silicon Valley residents and they may get spooked and pull their money. That’s the issue in this phase of the contagion.
- sroussey 4y agoNo bank is safe from a bank run.
- cbb330 4y agoThank god, a single source of good news is better than none. Does anyone have an aggregate view of the LCR / NSFR metrics across U.S. banks? I'd love to see the risk trend here at a wider scale than single bank disclosures like this one. Why? Because I'm really nervous that SVB was in no unique situation -- after all VCs / Startups share a lot of low confidence and low cash traits in common with other investors.
- hackernewds 4y agoNote they have only done this to contain fallout in their own stock. Banks usually reserve this information as competitive Intel.
- whatever1 4y agoHopefully the panic will not spread. Multiple people were calling me to ask whether they should get their money out of their bank. But keep in mind that people also went through a pandemic, where panic was the go-to option.
- eternalban 4y ago[flagged]
- nemo44x 4y ago> Multiple people were calling me to ask whether they should get their money out of their bank Should we? At minimum keep as close to $250k or less spread across however many banks as practical, right now.
- sroussey 4y agoI thinks lots of small companies with a sudden $4m influx of cash are not in a good position to open accounts at 16 banks. Now that said, there are hot money managers that will do this for you.
- technotony 4y agoWe use a sweep account that does this automatically with us just holding one bank account
- dannyw 4y agoOpen an account at one of the biggest banks (JPM Chase, Wells Fargo, etc). You don't need 16 banks when you can bank with a "too big to fail".
- bombcar 4y agoOr open at two of the 2big2fail - the chance that both go t-bills up at the same time is very low (and the one that doesn’t go bankrupt can provide the liquidity until the other resolves).
- eclipticplane 4y ago> The investment portfolio is less than 15% of total bank assets. Of this, less than 2% of total bank assets is categorized as available for sale. Is 2% good or bad?
- Narkov 4y agoDepends who is asking and when they ask. When there's a run, 2% is clearly bad for depositors wanting their cash back. When times are good, the banks investors want capital working as hard as possible to low available assets (usually) means more profit.
- markus_zhang 4y agoI'm sorry buddy, but this is no longer about tech or bonds. This is more about whether you can survive a withdrawal storm. This is more about whether someone will back you up with credibility.
- deleted 4y ago[deleted]
- braingenious 4y agoCan someone ELI5 what this is about? I know that another bank is going through some trouble and I’m assuming this is somehow connected? Or not? I am unfamiliar with this bank or this form.
- nemo44x 4y agoContagion. People are nervous that other banks are as insolvent as SVB. And even if those banks aren’t, nervous people making a bank run could replicate this. And if another bank falls, then another it would increase velocity and spread more rapidly until every bank is wiped out.
- deleted 4y ago[deleted]
- mdorazio 4y agoI'd really like to know where people are withdrawing their money from these banks to. They're not taking suitcases of cash, so it must be flowing to some other financial institutions. Is it going to traditional big banks (BofA, Wells, Chase, etc.)?
- fanzhang 4y agoYes -- all the people I know withdrawing from small banks are going to Chase or Morgan Stanley. These largest banks have to mark-to-market their losses and have a lot of cash (short duration) assets, and are literally too big to fail.
- zamnos 4y agoConfusingly, 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-us-list/ https://www.insiderintelligence.com/insights/largest-banks-u...
- raywu 4y agoMorgan Stanley is for wealth management. Chase for retail.
- labcomputer 4y agoWithin 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.
- metacritic12 4y agoCounterpoint: 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 depositors. - First Republic in some ways is in worse shape that SVB. SVB had all their assets in medium duration (10 year) treasuries. First Republic has a lot more 30 year mortgages they gave people at ultra low 2% interest rates. Today 30 year mortgages are 6%, which means if they tried to resell these loans they'd get more than 50% off. - Personally, I know of at least a couple of HNWIs who pulled funds other than $250K today. Who can blame them -- what's the upside if you have more than $250K in? First Republic relies on wealthy deposits, and these are not insured. [1] https://archive.is/QuOSD#selection-335.147-335.315 https://archive.is/QuOSD#selection-335.147-335.315
- resource0x 4y ago> If there was a bank run, First Republic probably would not be able to meet all depositors. If everyone knows this, why keep your money there? Tech exposure has nothing to do with it. "In a bank run, he who runs first, runs best".
- metacritic12 4y agoExactly, they're basically changing the subject to distract from the elephant in the room.
- dannyw 4y agoTech businesses tend to have more direct access to information (e.g. Twitter, emails), and listen to VCs and investors. Regular people and businesses don't hear about these things. Today, only 1 other person in my friend group of 6 heard about SVB.
- ketzo 4y agoI have to imagine that if you have enough money in First Republic for your withdrawal to actually be a problem for them… you at least have a dim awareness of, say, the WSJ front page.
- reducesuffering 4y agoUhhh, are they next? Their balance sheets says $17B assets more than liabilities, but $120B of those assets are in consumer loans and only $4B in cash... What kind of liquidity is that? $42B was just pulled from SVB. What are these banks doing? https://www.cnbc.com/quotes/FRC?tab=financials https://www.cnbc.com/quotes/FRC?tab=financials
- dannyw 4y agoThe balance sheets of banks are very weird. They have a lot of special rules and exemptions.
- ahzhou 4y ago> Consumer deposits have an average account size of less than $200,000 Whoa! FRB has wealthy customers. US average cash in savings accounts is $41,600. And this is pure cash too - not total net worth.
- xeromal 4y agoI'm a customer of FRB and they are definitely a "rich person's" bank (I'm probably their poorest customer" but their customer service is so flippen good. They assign you a banker that you can email day or night, weekend or weekday and they'll usually help you within a few hours. I've asked mine to set aside some currency for travel to a country or to wire some money and they handle it all with white glove service. I really hope they stick around. They're my favorite bank in the world. They also have delicious homemade cookies and free umbrellas for when you visit.
- auntienomen 4y agoFRB expanded their business by catering to the HENRY population (high earner, not rich yet). So they've got a lot more customers now with medium-large deposits. This should actually make them less vulnerable to bank runs. Some techie with $40k in their account is well protected by FDIC.
- welder 4y agoThey're HQ is San Francisco, the number 3 city with the most millionaires per capita in the world [0]. https://www.visualcapitalist.com/top-20-cities-ultra-wealthy/ https://www.visualcapitalist.com/top-20-cities-ultra-wealthy... I loved how they always had fresh cookies available for clients when you went in-person.
- flerchin 4y agoThe banks that the market has deemed "at-risk" "Trading in Pacific West, Western Alliance, and First Republic were stopped due to volatility after they all initially fell 40 to 50 percent. Trading was also briefly stopped in Signature Bank after its shares fell nearly 30 percent. Several of those banks sought to reassure the market by putting out statements highlighting their differences from SVB in terms of asset and depositor base." https://arstechnica.com/tech-policy/2023/03/silicon-valley-bank-shut-down-by-us-banking-regulators/ https://arstechnica.com/tech-policy/2023/03/silicon-valley-b...
- zenmacro 4y agoI have a mortgage with FRC. What happens to that mortgage if FRC goes under?
- ThrustVectoring 4y agoThe mortgage is one of the assets seized by the FDIC and sold off to meet bank liabilities. On your end little should change in the short term, and you may have a different owner for the mortgage at some point (and as I understand it, your mortgage changing ownership is a fairly common occurrence in general). As far as payment and servicing goes, there should be continuity in how that is handled. In short, you'll still owe somebody, it just won't be a bank that doesn't exist anymore. Over the short run, the FDIC or an acquiring bank will take over the back-end of the payments, which will be made much the same way as they are today.
- donedeals 4y agoI have a line of credit from them - will that terminate. The line of credit rate is dependent on me making deposits there and a min deposit.
- ericjmorey 4y agoYour deposits are insured by the FDIC, your money is safe. Your line of credit could be closed, but that is very unlikely.
- coredog64 4y agoNothing. It’s an asset that’s sold to the bank that buys FRC.
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- zenmacro 4y agoIt's trippy to see my own tiny contribution to tidal waves like this: > First Republic’s funding relies in large part on wealthy individuals who increasingly have a range of options to seek higher yields on their cash at other financial institutions as interest rates have risen. Over the last year I kept my FRC checking account at 100 (not the real number). A month back or so I dropped it down to 50 and moved the other 50 into T-Bills.
- jgalt212 4y agoThis 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.
- okhobb 4y agoThis 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.
- Econ999 4y agoAhhh yes. History doesn’t repeat, it rhymes. And, this limerick reminders me of the post-1985 S&L crisis. But, no banksters go to jail anymore. Thing is, once it’s no longer politically tolerable through threats and fear mongering and some blackmail, eventually the government will bail them out again for another rinse - wash - repeat cycle. The schedule is likely as prior. Warnings. Government involvement. Followed by a market crash (a la 1987), and maybe even both a stock market and bank holiday for a time in the hopes back door dealings can paper over the concerns until they re-open. It’s either a cliche or a trope at this point. Not sure which. The FED knew what its rate increases would do to its member banks. If you don’t think the regulators have direct knowledge of balance sheets of its members, there’s this oceanfront property in Arizona you might be interested in purchasing. It also knew which banks could withstand it (either through no or private or public or both private and public assistance) and voted in favor of the chosen winners, result will be greater consolidation with the majors always coming out on top in the end and the smalls and mids either bellying up or taken over / bought out at pennies on the dollar. Double win for the majors. It’s an old playbook and publicly available script given the data (deemed mildly trustworthy). Good luck all.
- WhatIThink 4y agoAs a customer of FRB, I know this to be a very sound and well run bank. They also have strong relationships with customers. This is not a Silicon Valley Bank story. I am going to buy some of their stock tomorrow, as it is an amazing buy at this price.
- WhatIThink 4y agoAs a long time customer of First Republic, I know them to be sound and very well managed. They are not Silicon Valley, which is also a good bank with a very valuable franchise I expect money center banks to be vying to acquire from the FDIC shortly, with some undertakings from FDIC, and all depositors to be protected. These two banks are very different in their balance sheets. As to First Republic, the concern is way overblown and I'm going to buy some First Republic stock tomorrow, as this price is ridiculous now.