First Republic Bank is a commercial bank and provider of wealth management services headquartered in San Francisco. It mainly caters to mainly high-net-worth individuals. It operates 93 offices in 11 states primarily in New York, California, Massachusetts, and Florida. It was , and still is highly rated by many of its customers that have been well looked after over the years.
It was rated as a secure bank worth investing in. Then came a unprecedented run on withdrawal requests from the banks depositors. After seeing other banks fail, many started looking for a safe haven in bigger banks. Much bigger banks to big to fail. When the panic set in , First Republic Bank shares went into free dive. They have a loan ratio of 111 percent to deposit according to some news reports. And that is not good when all your customers starts asking for the money back. All at the same time. That’s actually really bad for a bank. They hold your money in deposits, and lend the money out with higher interest to borrowers mostly on longer terms. So then you have big trouble raising funds to secure depositors so that you can pay them out today, and not a few years down the track. So when the big banks put 30 billion Us Dollars in as a giant deposit to First Republic, it all looked good, except now all the shareholders got worried too, and the price of the shares went down another 30 percent in a day.
So now what ? I believe that when the big banks believe First Republic won’t fail, they are probably right. Prominent U.S. lawmakers on banking matters are considering whether a higher federal insurance limit on bank deposits is needed to stem a financial crisis marked by a drain of large, uninsured deposits away from smaller and regional banks. They have supporters on both sides of the political spectrum. It would be a logical next step this week. Together with a slow down in interest hikes it could help the banking system a great deal
Probably because you never know what can happen next in this crazy world of modern banking. I went short on this bank, but now I am going long. There are lot of rumours today flowing around that Buffett is taking an interest in this bank. I am not sure he will, but if it is true, and we all believe it is true, then maybe, just maybe the share price will rise again. It’s a big gamble, but we all like a gamble. Don’t we ?
This is not financial advice. I have gone long in First Republic Bank in a truly speculative fashion, and have a lot to gain if I am right. And often I am not …