First Republic Bank attempts to steer away from collapse

Vincent Perretti

Corporate executives and investors seek to save First Republic Bank from being the next financial institution to collapse as of March 28, following the second and third largest bank crashes in U.S. history.

First Republic Bank is a full-service bank and wealth management firm that specializes in private banking, with assets amounting to $212 billion, according to Yahoo News.

The institution’s heavy focus on private banking and wealth management makes it favorable among higher net-worth individuals who can invest more and require sophisticated guidance.

But after the collapses of SVB Financial Group, Signature Bank and Silvergate Bank due to a lack of diverse portfolios and dwindling confidence from investors and depositors, First Republic Bank is following a similar trend that may lead to a collapse.

First Republic Bank suffered the same fate as the aforementioned banking institutions. It experienced a mass withdrawal of assets by depositors amounting to $70 billion, causing its stock to fall more than 80%, according to The Wall Street Journal.

Additionally, First Republic Bank lent out more money than it had to consumers, equating to a 111% liability-to-deposit ratio, according to S&P Global Ratings per reporting by Fortune.

JPMorgan Chase & Co. CEO Jamie Dimon spearheaded talks of keeping First Republic Bank afloat with government officials and other top executives of large banks.

U.S. Treasury Secretary Janet Yellen privately met with Dimon to discuss the idea of the nation’s largest banks coming together to deposit money into the flailing bank.

Soon after, 11 of the United States’ largest banks banded together to fund First Republic Bank with an additional $30 billion lifeline to restore depositors’ confidence in the banking system.

“Their collective support strengthens our liquidity position, reflects the ongoing quality of our business and is a vote      of confidence for First Republic and the entire U.S. banking system,” First Republic Bank executives said in a statement. “In addition, we want to share our sincerest thanks to our colleagues, clients and communities for their continued and overwhelming support during this period.”

Shares for First Republic Bank rallied, but they soon plummeted back to their original state.

The New York Times reported that just a day after First Republic Bank received $30 billion, the institution sought to sell pieces of itself to other banks with private equity firms.

“It just becomes complicated to auction off that kind of business because there are different bidders who are interested in different parts,” Eric Talley, a corporate law professor at Columbia Law School, told The New York Times. “Corralling and herding all of those cats into a coherent sales process can be just time-consuming and difficult and complicated.”

The $30 billion in additional funding “Should ease liquidity pressures, but we think the business faces substantial long-term challenges,” S&P analyst Nicholas Wetzel wrote in a research update. “Attracting meaningful deposits will be difficult, constraining the bank’s business positions.”

The bank received close to $70 billion in additional financing from the Federal Reserve and JPMorgan. Executives from First Republic Bank said in a statement that the institution’s “capital and liquidity positions are very strong.”

Additionally, bank executives gave up their performance-based bonuses to instill confidence back into investors.

“Banks are looking out for one another,” John Augustine, the chief investment officer of Huntington Private Bank, told Reuters. “We had two outliers go down and now they want to save what is considered a more mainstream bank.”