No Buyer For First Republic Bank At Any Price, Here's Why

FRC chart courtesy of StockCharts.com annotations by Mish.

In one of the biggest bank collapses ever, First Republic Bank is down 96 percent in two months. 

But look on the bright side. Silicon Valley Bank (SVB) fared even worse. 

At least FRC is still kicking. It rose 8.79 percent on Thursday. 

 

No Buyer at Any Price

You likely can't give FRC away. There would be no takers. Its assets are worth less than zero.

That's because merger accounting rules would require a buyer to immediately mark down FRC's assets to fair value.

FRC lost $100 billion in deposits. And unlike SVB, it is stuck with severely underwater mortgage loans. 

The FRC business model was to give ridiculously cheap mortgage loans to high-wealth clients in return for their business. When that model started blowing up, clients pulled their deposits.

Given all around silliness by banks chasing yield, any buyer would likely have to raise capital which would hammer their own share price. 

According to the WSJ, Autonomous Research analyst David Smith commented “It might cost you $30 billion of capital to buy the bank for free.” 

If the run on assets continues, either the Treasury or the Fed is likely to step in. Elizabeth Warren would then moan about the Fed bailing out the wealthy. If the bank went under, she would moan about something else.

Meanwhile, Treasury Secretary Janet Yellen repeated her comment that the U.S. banking system remains sound and the U.S. government will take "any necessary steps" to keep it the strongest and safest financial system in the world.


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