World News | US regulators toy with banks’ fate, First Republic in trouble

NEW YORK, May 1 (AP) – Regulators spent the weekend looking for a solution to First Republic Bank’s woes, hoping to find a solution before U.S. stocks open on Monday.

San Francisco-based First Republic has struggled since the collapse of Silicon Valley Bank and Signature Bank in early March, as investors and depositors grew concerned that the bank might not survive as an independent entity.

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The bank’s shares closed at $3.51 on Friday, a tiny fraction of where they were trading at around $170 a year ago. It fell further in after-hours trading.

Fears of banking turmoil have periodically rocked world markets since the collapse of Silicon Valley Bank.

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Markets in many parts of the world were closed on Monday for the May 1 holiday. Two Asian markets opened higher in Tokyo and Sydney on Monday, while U.S. futures were little changed, with the S&P 500 contract up nearly 0.1%.

First Republic is seen as the bank most at risk of failure due to the risk of large uninsured deposits and low interest rate loans.

Former Goldman Sachs President Gary Cohn, who served as President Donald Trump’s top economic adviser, said Sunday on CBS News’ “Face the Nation” that the FDIC “would rather sell the bank whole than piece by piece.”

“The most likely thing that will happen is that the FDIC will seize control and simultaneously resell the assets to the winning bidder,” Cohen said.

Cohen said he believed it would be a “much faster process” than what happened with Silicon Valley Bank.

As of March 31, First Republic had total assets of $233 billion. Late last year, the Federal Reserve ranked First Republic the 14th largest U.S. commercial bank.

Before Silicon Valley Bank collapsed, First Republic had a banking franchise that was the envy of most in the industry. Its clients — mainly the wealthy and powerful — rarely default on their loans. The 72-branch bank makes most of its money by providing low-cost loans to wealthy individuals, including Meta Platforms CEO Mark Zuckerberg, according to reports.

First Republic, which has a wealth of deposits from the affluent, has more than doubled its total assets from $102 billion at the end of the first quarter of 2019, when it employed 4,600 full-time employees.

But the vast majority of deposits at First Republic, like those at Silicon Valley and Signature Bank, are uninsured — that is, above the $250,000 limit set by the FDIC. That worries analysts and investors. If First Republic fails, its depositors may not get all their money back.

Those concerns were on display in the bank’s most recent quarterly results. The bank said depositors withdrew more than $100 billion from banks during the crisis in April. San Francisco-based First Republic said it was able to stop the bleeding after a group of big banks stepped in and rescued it with $30 billion in uninsured deposits.

Now the First Republic needs a bigger fix.

“Putting the banks in the hands of bigger banks is the best economic outcome,” said Steven Kelly, a fellow at the Yale School of Management’s Financial Stability Project.

“First Republic knows a lot about its customers and has been a profitable bank throughout its history – but its business model is not stable. It needs a large bank balance sheet behind it.”

Kelly said other options, such as government control or continuing to try to survive on its own, would see its value continue to disappear along with credit and economic growth.

“Successful integration into a major bank will provide the company with a suitable, stable home to continue delivering its value proposition to the economy,” Kelly said.

Since the crisis, the First Republic has been looking for ways to turn things around quickly. The bank plans to sell unprofitable assets, including low-interest mortgages it makes to wealthy clients.

It also announced plans to lay off as much as a quarter of its workforce, bringing its total workforce to about 7,200 by the end of 2022.

But investors remain skeptical. Executives at the bank have not answered any questions from investors or analysts since the bank’s results, sending the stock further lower.

It is difficult to restructure a balance sheet profitably when a company has to sell assets quickly and there are fewer and fewer bankers to find opportunities for banks to invest.

Banks such as Citigroup and Bank of America, which took years to return to profitability after the global financial crisis 15 years ago, benefited from government support to stay afloat. (Associated Press)

(This is an unedited and auto-generated story from a Syndicated News feed, the content body may not have been modified or edited by LatestLY staff)