Another Bank Failure: RIP First Republic (1985-2023)

First Republic Bank (NYSE:FRC) has dethroned Silicon Valley Bank as the second-largest bank failure in history — becoming the third bank to collapse in under two months.

Yesterday, JPMorgan said it was acquiring $92.4B in deposits, $173B in loans and $30B in securities from First Republic (FR).

Remembering First Republic

Founded in 1985, FR was the 14th largest bank in 2020. It specialized in banking wealthy individuals with the five-star “whatever you need” experience.

• For that, depositors earned lower rates — making FR more profitable than the median bank.
• In 2021, FR paid an average of 0.12% to depositors — while offering loans at an average of 3.03%.

The stage was set for its collapse…

1/ As the Fed raised rates, customers began withdrawing deposits for higher rates elsewhere — forcing FR to offer higher rates.

2/ Then banks started collapsing, attention turned to FR’s unrealized losses on its loans, and depositors began withdrawing funds from FR.

3/ The situation escalated last week after FR’s earnings report revealed that it lost nearly half its deposits in March and might have to sell more assets to stabilize itself.

That scared investors, who rushed out of $FRC and sent its stock down 50% in a single day.

Can we finally move past bank failures?

JPMorgan already owned more than 10% of American deposits before the deal — and now it’s only getting larger. Here’s what CEO Jamie Dimon had to say after:

• “This is getting near the end of it, and hopefully, this helps stabilize everything.”
• “The American banking system is extraordinarily sound.”

Not so fast. In a recent interview, OG investor Charlie Munger said banks are filled with bad loans on “a lot of troubled office buildings” and “shopping centers.” Except “it’s not nearly as bad as it was in 2008.”

Catch up: Commercial Real Estate is the Next Domino At Risk of Falling