Nashville, Tenn. — Arc Technologies charted a 12X increase in loan originations year over year in 2023, as it gained customers and deposits when businesses looked to pivot to new banking partners after the collapse of Silicon Valley Bank. One year after the banking crisis, digital bank Arc is on track for “billions in deposits […]
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Fintechs are looking to legacy banks with strong portfolios to provide seamless onboarding and digital capabilities following the regional banking crisis last year. One year after the collapse of Silicon Valley, Signature and First Republic banks, clients are still clinging to “too big to fail” institutions, Ashish Garg, co-founder and chief executive of digital communications […]
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Citigroup is planning to lay off 20,000 employees, or about 10% of its workforce, in the next two years as it comes off its worst quarterly financial results in more than a decade.
The embattled bank on Friday reported $1.8 billion in losses in the fourth quarter of 2023, while revenue fell 3% to $17.4 billion from last year, according to its latest financial filings. The layoffs could save the bank as much as $2.5 billion, Citigroup’s presentation to investors shows.
“While the fourth quarter was very disappointing due to the impact of notable items, we made substantial progress simplifying Citi and executing our strategy in 2023,” Citigroup CEO Jane Fraser said Friday in a statement.
Citi’s layoffs will bring its headcount to 180,000 by 2026, a Citigroup representative told CBS MoneyWatch. The cuts follow a smaller round of job reductions that eliminated roughly 10% of senior manager roles at the bank late last year, Bloomberg reported.
Citi’s workforce reductions form part of a larger reorganization effort aimed at improving the bank’s financials and stock price. The restructuring is expected to reduce Citi’s expenses as low as $51 billion, bringing the bank closer to its profit goals, Reuters reported.
Citibank’s organizational overhaul comes as financial institutions are attempting to recover from a turbulent year that included a decline in their stock prices. According to Forbes, the 15 largest banks in the U.S. lost more than $46 million in value in a single day last August.
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Big banks are sitting on $650 billion of unrealized losses, Moody’s has estimated.
It’s a sign even Wall Street’s best-known names are feeling the heat from the Treasury-market rout.
Crashing bond prices sank Silicon Valley Bank earlier this year, and there may be more chaos to come.
Crashing bond prices sank Silicon Valley Bank in March — and there’s reason to believe that what triggered the California lender’s collapse may be haunting Wall Street again.
The brutal Treasury-market meltdown has hit some of the largest financial institutions hard, dragging down the share prices of big names such as Bank of America and fueling fears that the turmoil triggered by SVB’s bankruptcy may not be over just yet.
Here’s everything you need to know about unrealized losses, including why they’re dragging on bank stocks and whether they could trigger another financial crisis.
Treasury bonds — debt instruments the government issues to fund its spending — have been on a nightmarish run since the onset of the pandemic, with investors fretting about rising interest rates and the long-term viability of the US’s massive deficit.
BlackRock’s iShares 20+ Year Treasury fund, which tracks longer-duration debt prices, has plunged 48% since April 2020. Meanwhile, 10-year Treasury yields, which move in the opposite direction to prices, recently spiked above 5% for the first time in 16 years.
As a result of that sell-off, some of the US’s biggest banks are now sitting on unrealized, or “paper,” losses worth hundreds of billions of dollars. That means the value of their bond holdings has plunged, but they’ve chosen to hold on rather than offload their investments.
Moody’s estimated last month that US financial institutions had racked up $650 billion worth of paper losses on their portfolios by September 30 — up 15% from June 30. The ratings agency’s data still doesn’t account for a hellish October where the longer-term collapse in bond prices spiraled into one of the worst routs in market history.
These “losses” are not the same as debt, however, which describes actual borrowings that need to be repaid.
Bank of America is the big lender worst affected by the crash in bond prices, having disclosed a potential $130 billion hole in its balance sheet last month.
The other “Big Four” banks — Citigroup, JPMorgan Chase, and Wells Fargo — have also racked up unrealized losses in the tens of billions, according to their second- and third-quarter earnings reports.
Silicon Valley Bank failed in March after disclosing a $1.8 billion loss on its own bond portfolio, triggering a run on deposits. Similarly, big banks’ huge unrealized losses are also sparking concern among Wall Street doom-mongers.
“‘Higher for longer’ is absurd baloney,” the market vet Larry McDonald said in a post on X Sunday, referring to the Fed signaling it would hold interest rates at about their current level well into 2024 in a bid to kill off inflation. “A 6% + Fed funds and Bank of America is near insolvency.”
It’s important to remember that BofA’s $130 billion losses are still unrealized. Unlike SVB, it isn’t officially in the red yet because it has not sold its bond holdings.
The bank’s chief financial officer, Alastair Borthwick, shrugged off the market’s worries on last month’s earnings call, pointing out that most of the bank’s fixed-income portfolio was low-risk government bonds it planned to hold until the debt expires.
“All of these are unrealized losses are on government-guaranteed securities,” he told reporters. “Because we’re holding them to maturity, we will anticipate that we’ll have zero losses over time.”
There’s still a possibility that spooked BofA customers will pull their money en masse, as they did with SVB — but that hasn’t happened. In fact, deposits are up after registering about 200,000 new accounts in the third quarter.
Some analysts also believe the worst of the Treasury-market rout is now over, with the Federal Reserve starting to signal that its tightening campaign is nearly done. Ten-year yields have softened in recent weeks, falling from 5% to 4.6% as of Tuesday.
That doesn’t mean the Big Four banks can afford to just dismiss the bond rout.
In a paper published earlier this year, researchers for the Kansas City Fed concluded that paper losses could still drag down a bank’s share price: “Unrealized losses can increase equity costs as investors’ perceptions of financial health deteriorate.”
That’s been happening this year, with three of the big four banks’ stocks sliding. Predictably, Bank of America has been worst affected, with its stock down 24% over the past year and 14% year-to-date.
“Worries over unrealized losses on sovereign bond holdings are also weighing on the US lenders, to again reflect concerns over rising interest rates and whether the US Federal Reserve will ultimately tighten policy by too much for too long,” AJ Bell’s Russ Mould said in a note last week.
Unrealized losses may not be about to trigger another financial crisis — but as long as bank stocks are down, they’ll remain a concern for Wall Street’s biggest names.
Read the original article on Business Insider
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The former parent company of Silicon Valley Bank is nearing a deal to sell its VC and credit-investment arm out of bankruptcy, according to a Wall Street Journal report Friday, citing people familiar with the matter. SVB Financial Group
SIVPQ,
is in talks with two bidders for SVB Capital: Anthony Scaramucci’s SkyBridge Capital and Atlas Merchant Capital, and private-equity firm Vector Capital. A court decision on a winner is expected in the next few weeks in a deal that could fetch between $250 million and $500 million. Silicon Valley Bank failed in March and was taken over by regulators, cascading into a banking crisis that later took down Signature Bank and First Republic.
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A bill that would take back pay from executives whose banks fail appears likely to advance in the Senate, several months after Silicon Valley Bank’s implosion rattled the tech industry and tanked financial institutions’ stocks.
The Senate Banking Committee on Wednesday heard the bipartisan proposal, co-sponsored by Sens. Sherrod Brown (D-Ohio) and Tim Scott (R-S.C.)
Dubbed the Recovering Executive Compensation Obtained from Unaccountable Practices Act of 2023, or RECOUP Act, the bill would impose fines of up to $3 million on top bankers and bank directors after an institution collapses. It would also authorize the Federal Deposit Insurance Commission to revoke their compensation, including stock sale proceeds and bonuses, from up to two years before the bank crash.
“Shortly after the collapse of SVB, CEO Greg Becker fled to Hawaii while the American people were left holding the bag for billions,” Scott said during the hearing, adding, “these bank executives were completely derelict in their duties.”
The proposal is policymakers’ latest push to stave off a potential banking crisis months after a series of large bank failures rattled the finance industry.
In March, Democratic Sens. Elizabeth Warren of Massachusetts and Catherine Cortez-Masto of Nevada teamed up with Republican Sens. Josh Hawley of Missouri and Mike Braun of Indiana to propose the Failed Bank Executive Clawback Act. The bill — a harsher version of the RECOUP Act —would require federal regulators to claw back all or part of the compensation received by bank executives in the five years leading up to a bank’s failure.
Silicon Valley Bank fell in early March following a run on its deposits after the bank revealed major losses in its long-term bond holdings. The collapse triggered a domino effect, wiping out two regional banks — New York-based Signature Bank and California’s First Republic.
A push to penalize executives gained steam after it emerged that SVB’s CEO sold $3.6 million in the financial institution’s stock one month before its collapse. The Justice Department and the Securities and Exchange Commission are investigating the timing of those sales, the Wall Street Journal reported.
Recouping bank officials’ pay could prove difficult given that regulators have not changed the rules regarding clawbacks by the FDIC. Under the Dodd-Frank Act, the agency has clawback authority over the largest financial institutions only, in a limited number of special circumstances.
In a hearing before the Senate Banking Committee on Tuesday, FDIC Chair Martin Gruenberg signaled a need for legislation to claw back compensation.
“We do not have under the Federal Deposit Insurance Act explicit authority for clawback of compensation,” Gruenberg said in response to a question by Cortez-Masto. “We can get to some of that with our other authorities. We have that specific authority under Title II of the Dodd-Frank Act. If you were looking for an additional authority, specific authority under the FDI Act for clawbacks, it would probably have some value there.”
Lawmakers on the Senate Banking Committee derided claims by the former chief executive of Silicon Valley Bank, Gregory Becker, that unforeseeable circumstances led to the bank’s failure.
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The future of PacWest Bancorp hangs in the balance as investors pull back from regional lenders following the sudden collapse of three prominent banks in a matter of weeks.
Shares of the $44 billion bank continued to slide Thursday, tumbling 60% to an all-time low of $2.57 and with trading briefly halted due to volatility. The latest dive in the stock, which has fallen 89% this year, followed a report by Bloomberg News on Wednesday that PacWest is weighing its strategic options, including a possible sale.
In a statement issued late Wednesday, PacWest confirmed that it has “explored strategic asset sales” and has recently “been approached by several potential partners and investors.” Those talks continue, the company added.
Although PacWest’s stock has tanked in recent weeks, the company hasn’t faced the kind of massive capital flight that crippled Silicon Valley Bank, noted analyst Adam Crisafulli of Vital Knowledge. In reporting its first-quarter earnings on April 25, PacWest said its total deposits had increased $1.1 billion to $28.2 billion.
PacWest also has far less in uninsured deposits — client funds in excess of the $250,000 account cap guaranteed by the U.S. — than SVB did when it capsized in March. CEO Paul Taylor noted last month that the bank’s total insured deposits had risen from 48% of total deposits at the end of 2022 to 71% as of March 31.
“It’s important to remember that Silicon Valley and First Republic were unique, and investors shouldn’t simply extrapolate what happened to them to the whole regional landscape,” Crisafulli said in a report.
Although a range of factors have hurt regional banks, the main problem stems from the sharp increase in interest rates, which have shot up 5% since the Federal Reserve started raising the cost of borrowing in March of 2022. Higher rates increase lenders’ funding costs while also forcing them to boost the returns they offer to customers, which reduces bank profits.
At the same time, when rates were still low and money was cheap, institutions like SVB gorged on long-duration Treasury and mortgage securities. But as interest rates soared last year, the price of those bonds fell sharply, exposing the banks to potentially large losses. Some banks had to sell the investments and book the losses on their balance sheets.
Banks like SVB and First Republic were also hurt because they catered to wealthier clients with account balances exceeding the Federal Deposit Insurance Corporation’s $250,000 deposit insurance limit. Panicked customers rushed to pull their funds, causing a classic “run” on the banks.
Meanwhile, even lenders with a large share of insured deposits face the challenge of retaining customers lured by the higher rates available in money-market funds, high-yield savings accounts and other investments. Smaller and midsize banks, which also focus on issuing loans to local businesses, are also more vulnerable to the recent downturn in commercial real estate, such as malls and office parks.
The upshot for many banks: Higher costs for doing business, capital flight and mounting losses.
Wall Street has grown increasingly wary of midsize lenders since the March 10 collapse of Silicon Valley Bank (SVB) and the failure only days later of Signature Bank after depositors rushed to withdraw their money.
Shares of Western Alliance Bancorporation plunged 58% Thursday even as it sought to reassure investors that its financial position remains solid. The selloff came after the Financial Times reported that the $65 billion Phoenix-based bank was exploring a sale. Western Alliance denied the report, calling it “categorically false in all respects” and accusing the newspaper of allowing itself to be used by investors who bet against a company’s stock.
The bank said late Wednesday that it hasn’t experienced unusual deposit outflows amid the turbulence buffeting the banking sector, noting that its deposits have risen $1.2 billion this quarter to $48.8 billion. As of May 2, 74% of its total deposits were insured.
As investors soured on $229 billion First Republic, federal financial regulators were forced to arrange a shotgun marriage with JPMorgan Chase, which agreed this week to buy most of the company’s assets.
In announcing the deal on Monday, JPMorgan CEO Jamie Dimon said that absorbing First Republic would help stabilize the banking industry, while warning that the turmoil affecting midsize and small lenders could continue.
Federal Reserve Chair Jerome Powell, speaking Wednesday after the central bank moved to hike its benchmark rate for a 10th consecutive time, expressed confidence in the U.S. banking industry, saying it remains “sound and resilient.”
In what is by now a familiar pattern, the fate of another regional lender hangs in the balance as investors bail from the sector following the sudden collapse of three prominent banks in a matter of weeks.
Shares of PacWest Bancorp crumbled after the close of trading on Wednesday, diving 55% to $2.88 amid a report by Bloomberg News that the $44 billion bank is weighing its strategic options, including a possible sale. The market drop followed a 28% plunge in Los Angeles-based PacWest’s stock price the previous day.
PacWest, whose shares are down 78% over the last three months, has hired a financial adviser and is also considering a breakup or trying to raise capital, according to Bloomberg.
Wall Street has grown increasingly wary of midsize lenders since the March 10 collapse of Silicon Valley Bank (SVB) and the failure only days later of Signature Bank after depositors rushed to withdraw their money.
As investors soured on $229 billion First Republic, federal financial regulators were forced to arrange a shotgun marriage with JPMorgan Chase, which agreed this week to buy most of the company’s assets.
In announcing the deal on Monday, JPMorgan CEO Jamie Dimon said that absorbing First Republic would help stabilize the banking industry, while warning that the turmoil affecting midsize and small lenders could continue.
Other regional bank stock also continued to reel on Wednesday. Western Alliance sank 4% before tumbling another 29% in after-hours trading, while Comerica and Zions Bancorporation also fell sharply. The KBW regional bank index has lost 29% this year.
Although PacWest’s stock has tanked in recent weeks, the company hasn’t faced the kind of massive capital flight that crippled Silicon Valley Bank, noted analyst Adam Crisafulli of Vital Knowledge. In reporting its first-quarter earnings on April 25, PacWest said its total deposits had increased $1.1 billion to $28.2 billion.
PacWest also has far less in uninsured deposits — client funds in excess of the $250,000 account cap guaranteed by the U.S. — than SVB did when it capsized in March. CEO Paul Taylor noted last month that the bank’s total insured deposits had risen from 48% of total deposits at the end of 2022 to 71% as of March 31.
“It’s important to remember that Silicon Valley and First Republic were unique, and investors shouldn’t simply extrapolate what happened to them to the whole regional landscape,” Crisafulli said in a report.
New York
CNN
—
Federal regulators are holding an auction for ailing regional bank First Republic, a person familiar with the matter tells CNN.
Final bids are due for First Republic Bank at 4 p.m. ET on Sunday, the source said.
The Federal Deposit Insurance Corporation, the independent government agency that insures deposits for bank customers, is running the auction.
Neither First Republic nor the FDIC were immediately available for comment.
Shares of First Republic
(FRC) plunged from $122.50 on March 1 to around $3 a share as of Friday on expectations that the FDIC would step in by end of day and take control of the San Francisco-based bank, its deposits and assets. But that never happened.
The FDIC had already done so with two other similar sized banks just last month — Silicon Valley Bank and Signature Bank — when runs on those banks by their customers left the lenders unable to cover customers’ demands for withdrawals.
The Wall Street Journal previously reported that JPMorgan Chase and PNC Financial are among the big banks bidding on First Republic in a potential deal that would follow an FDIC seizure of the troubled regional bank.
PNC declined to comment. JPMorgan did not respond to requests for comment.
“We are engaged in discussions with multiple parties about our strategic options while continuing to serve our clients,” First Republic said in a statement Friday night.
If there is a buyer for First Republic, the FDIC would likely be stuck with some money-losing assets, as was the case after it found buyers for the viable portions of SVB and Signature after it took control of those banks.
A kind of shotgun marriage, arranged by regulators who didn’t want a significant bank to end up in the hands of the FDIC before it was sold, occurred several times during the financial crisis of 2008 that sparked the Great Recession. Notably, JPMorgan bought Bear Stearns for a fraction of its earlier value in March of 2008, and then in September bought savings and loan Washington Mutual, soon after Bank of America bought Merrill Lynch.
The failure of Washington Mutual in 2008 was the nation’s largest bank failure ever. First Republic, which is bigger than either SVB or Signature Bank, would be the second largest.
Soon after collapses of SVB and Signature in March, First Republic received a $30 billion lifeline in the form of deposits from a collection of the nation’s largest banks, including JPMorgan Chase
(JPM), Bank of America
(BAC), Wells Fargo
(WFC), Citigroup
(C) and Truist
(TFC), which came together after Treasury Secretary Janet Yellen intervened.
The banks agreed to take the risk and work together to keep First Republic flush with the cash in the hopes it would provide confidence in the nation’s suddenly battered banking system. The banks and federal regulators all wanted to reduce the chance that customers of other banks would suddenly start withdrawing their cash.
But while the cash allowed First Republic to make it through the last six weeks, its quarterly financial report Monday evening, with the disclosure of massive withdrawals by the end of March, spurred new concerns about its long-term viability.
The financial report showed depositors had withdrawn about 41% of their money from the bank during the first quarter. Most of the withdrawals were from accounts with more than $250,000 in them, meaning those excess funds were not insured by the FDIC.
Uninsured deposits at the bank fell by $100 billion during the course of the first quarter, a period during which total net deposits fell by $102 billion, not including the infusion of deposits from other banks.
The uninsured deposits stood at 68% of its total deposits as of December 31, but only 27% of its non-bank deposits as of March 31.
In its earnings statement, the bank said insured deposits declined moderately during the quarter and have remained stable from the end of last month through April 21.
Banks never have all the cash on hand to cover all deposits. They instead take in deposits and use the cash to make loans or investments, such as purchasing US Treasuries. So when customers lose confidence in a bank and rush to withdrawal their money, what is known as a “run on the bank,” it can cause even an otherwise profitable bank to fail.
First Republic’s latest earnings report showed it was still profitable in the first quarter — its net income was $269 million, down 33% from a year earlier. But it was the news on the loss of deposits that worried investors and, eventually, regulators.
While some of those who had more than $250,000 in their First Republic accounts were likely wealthy individuals, most were likely businesses that often need that much cash just to cover daily operating costs. A company with 100 employees can easily need more than $250,000 just to cover a biweekly payroll.
First Republic’s annual report said that as of December 31, 63% of its total deposits were from business clients, with the rest from consumers.
First Republic started operations in 1985 with a single San Francisco branch. It is known for catering to wealthy clients in coastal states.
It has 82 branches listed on its website, spread across eight states, in high-income communities such as Beverly Hills, Brentwood, Santa Monica and Napa Valley, California; in addition to San Francisco, Los Angeles and Silicon Valley. Outside of California, branches are in other high-income communities such as Palm Beach, Florida; Greenwich, Connecticut; Bellevue, Washington; and Jackson, Wyoming.
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The sudden collapse of Silicon Valley Bank last month was due to a combination of extremely poor bank management, weakened regulations and lax government supervision, according to a highly anticipated autopsy of the bank’s failure from the Federal Reserve released Friday.
The report takes a critical look at what the Fed missed as Silicon Valley Bank grew quickly in size in the years leading up to its collapse. The report also points out underlying cultural issues at the Fed, where supervisors were unwilling to be hard on bank management when they saw growing problems.
The report, authored by Federal Reserve staff and Michael Barr, the Fed’s vice chair for supervision, comes amid ongoing concerns about the strength of regional banks. Earlier this week, First Republic Bank’s stock tumbled after investors were spooked by the bank’s disclosure on Monday that depositors withdrew more than $100 billion during last month’s crisis, raising concerns about First Republic’s stability.
Silicon Valley Bank was seized by regulators on March 10 after customers withdrew billions of deposits within a matter of hours in a classic bank run, which was hastened by the swiftness of mobile banking. The new report from the Fed singled out the central bank for criticism, saying the institution “did not appreciate the seriousness of critical deficiencies in the firm’s governance, liquidity, and interest rate risk management.”
“These judgments meant that Silicon Valley Bank remained well-rated, even as conditions deteriorated and significant risk to the firm’s safety and soundness emerged,” the report said.
In a statement, Fed Chair Jerome Powell said he welcomed the report, which he called “thorough and self-critical.”
Silicon Valley Bank was 40-year-old financial institution that catered to the tech industry and was the 16th largest U.S. bank before its sudden collapse, which set off a crisis of confidence for the banking industry.
Two days after Silicon Valley Bank’s failure, regulators seized Signature Bank of New York. Although regulators guaranteed all the banks’ deposits, customers at other midsize regional banks rushed to pull out their money — often with a few taps on a mobile device — and move it to the perceived safety of big money center banks such as JPMorgan Chase.
The report also looks at the role social media and technology played in the bank’s last days. While SVB’s management was poor and ultimately that was the reason the bank failed, the report also notes that social media caused a bank run that happened in just hours, compared to days for earlier bank runs like those seen in 2008.
Although the withdrawals have abated at many banks, First Republic Bank in San Francisco appears to be in peril, even after receiving a $30 billion infusion of deposits from 11 major banks in March. The bank’s shares have plunged 57% this week after it revealed the extent to which customers pulled their deposits in the days after Silicon Valley Bank failed.
The nation’s banks are regulated by a troika of regulators: the Federal Reserve, the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation. All have been criticized for potentially missing signs that Silicon Valley Bank and Signature Bank might be in trouble.
Barr appeared at two hearings in Congress last month and acknowledged that Federal Reserve bank supervisors had warned Silicon Valley management as early as the fall of 2021 of risks stemming from its business model, but the bank’s managers failed to take the steps necessary to fix the problems.
Republicans at both hearings had criticized federal regulators for failing to act with the proper sense of urgency.
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A version of this story first appeared in CNN Business’ Before the Bell newsletter. Not a subscriber? You can sign up right here. You can listen to an audio version of the newsletter by clicking the same link.
New York
CNN
—
First Republic Bank has been teetering on the edge for weeks. It may be finally falling.
The San Francisco-based lender could be next in the line to collapse, following in the footsteps of former competitors Silicon Valley Bank and Signature Bank.
It certainly fits the bill: First Republic
(FRC), like SVB, is a mid-sized regional bank with a highly concentrated customer base, outsized amounts of uninsured deposits and loads of unrealized losses on the bonds and treasuries it holds.
Rumors swirled on Wednesday as publications rushed out reports from unnamed sources saying that the bank was looking to cut a deal to sell assets, that the White House wasn’t interested in facilitating a bailout (there were also reports that it is) and that the Federal Deposit Insurance Corporation is considering downgrading the bank’s debt, which would limit its access to essential Federal Reserve loans.
The FDIC, Federal Reserve, White House and First Republic did not respond to requests for comment about those reports. But the damage has been done.
Shares of the stock fell by nearly 30% on Wednesday, after plunging by 49% on Tuesday. The stock’s trading was halted numerous times both days as its rapid decline triggered volatility-triggered timeouts by the New York Stock Exchange.
But what’s actually happening here?
The reality of the situation: What we do know for certain is that First Republic reported on Monday that its total deposits fell 41% in the first quarter of 2023 to $104.5 billion, even after a consortium of banks stepped in with $30 billion to prevent the lender from failing. Without that cash infusion, deposits would have fallen by over 50%.
But, importantly, the bank said that while it saw a sharp drop in deposit activity after the collapse of SVB and Signature Bank last month, activity began to stabilize at the end of March and has since remained steady.
We also know that First Republic’s net interest income, which shows how much money the bank earned from lending and borrowing, was down 19.4% year-over-year at the end of the first quarter.
On top of all that, the bank is vulnerable to liquidity problems.
When the banking crisis erupted in mid-March, about two-thirds of First Republic’s deposits were uninsured with the FDIC. That’s lower than the 94% at Silicon Valley Bank — but at the end of last year, First Republic had an exceptionally high ratio of 111% for loans and long-term investments to deposits, according to S&P Global — meaning it has loaned and invested more money than it has in deposits.
In short: The outlook for the bank is not good.
“It’s becoming clearer each day” that First Republic is “toast,” said Don Bilson at Gordon Haskett, in a note Wednesday. “The only question that really needs to be answered is whether the [Federal Deposit Insurance Corporation] moves in before the weekend or during the weekend, which is when it usually does its thing.”
Possible solutions: We also know that it’s not over until it’s over, and that the bank is still operating. There are still some narrow paths forward.
There’s a small chance that First Republic stays the course and “muddles along as a standalone company,” said David Chiaverini, managing director of equity research at Wedbush Securities.
What’s more likely is that the company will try to sell some of its loans and securities at the same cost they bought them for. In exchange, the buyer would receive a preferred equity interest in the company.
That will be a tough sell since those assets would probably sell for well above market rate. First Republic’s bonds maturing in 2046 are currently trading at just 43 cents on the dollar. But the bank has been lucky before. First Republic has stayed afloat since March largely thanks to a $30 billion bailout from a conglomerate of large US banks and a $70 billion line of credit from JPMorgan.
The third option is the worst for shareholders: the bank could go into receivership. When a struggling bank goes into receivership it means that a regulatory authority or government agency takes control of the bank and its assets, usually with the goal of liquidating those assets to repay the bank’s creditors.
Investors in First Republic would most likely see their money wiped out in that scenario.
Coming next: First Republic is in a very tricky situation. Investors will be crossing their fingers and holding their breath until Friday at 4 p.m. ET. That’s when newly-collapsed banks have admitted defeat in the past.
Facebook-parent Meta on Wednesday reported that it grew sales by 3% during the first three months of the year, reversing a trend of three consecutive quarters of revenue declines and far exceeding Wall Street analysts’ expectations, reports my colleague Clare Duffy.
Meta shares jumped as much as 12% in after-hours trading following the report, continuing the company’s strong trajectory since CEO Mark Zuckerberg announced that 2023 would be a “year of efficiency.”
Another bright spot: user growth was relatively strong compared to recent quarters. The number of monthly active people on Meta’s family of apps grew 5% from the prior year to more than 3.8 billion and Facebook daily active users increased 4% to more than 2 billion.
Still, Meta has a big hill ahead of it. The company also reported that profits declined by nearly a quarter to $5.7 billion compared to the same period in the prior year. Price per advertisement — an indicator of the health of the company’s core digital ad business — also decreased by 17% from the year prior.
Meta has been in the midst of a massive restructuring, as it attempts to recover from a perfect storm of heightened competition, lingering recession fears resulting in fewer ad dollars and a multibillion dollar effort to build a future version of the internet it calls the metaverse.
Meta said in November it would eliminate 11,000 jobs, the single largest round of cuts in its history. And in March, Zuckerberg announced Meta would lay off another 10,000 employees. All told, the cuts will shrink Meta’s workforce by a quarter.
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