The Finance world has been shaken in recent months by the fall of several banks, including Silicon Valley Bank and Signature Bank. Investors and customers alike held their breath, praying that these two bank collapses were just isolated events that would not occur again.
Sadly it seems like First Republic Bank may be the next bank in line to fall!
There is one camp who believes that the bank will survive. Starting with a Veteran Bank Analyst who has over 40 years of experience Dick Bove. In an article written by Dan Wail called First Republic ‘Will Survive’: Veteran Bank Analyst Bove it is written that Dick Bove is known as “the dean of banking analysis.”
With First Republic Bank’s stock having dropped by a wapping 60% since Monday April 24th due to a troubling earnings report for Q1 and prior to this unfortunate event the Bank lost 100 billion dollars roughly in March, because customers no longer feel safe depositing their money with First Republic. It is looking more and more like a collapse is imminent. Revenue drops of 13% in the first quarter are not to be dismissed either.
Despite all these facts Dick Bove still believes that First Republic Bank will avoid collapsing. He also believes that the bank can survive without intervention from the government.
When the reporter from The Street.com interviewed Dick Bove for the article called First Republic ‘Will Survive’: Veteran Bank Analyst Bove he made some interesting statements.
The first question put to Dick Bove was “ How do you think the First Republic saga will play out?”
Dick Bove responded with “I think it will survive with the money that has been put into it. The first-quarter balance sheet shows that the government actually owns it. First Republic has about $75 billion of [regular] deposits and $30 billion from the big banks. [JPMorgan Chase and others combined to deposit that sum into First Republic last month as a sign of confidence in the bank.]
Then it has $105 billion in loans from the Federal Reserve and the Federal Home Loan Bank. Real equity [assets minus liabilities] is probably negative $14 billion. The entity that owns First Republic is really the U.S. government.”
Dick Bove was also asked in the same interview what the federal reserve could do.
Dick responded to the question like this “ The Fed could step in and say the big banks must convert their $30 billion of deposits into common equity. The First Republic doesn’t have bad loans, just misvalued loans. So First Republic could sell loans, take a loss up to $30 billion and still have common equity. But then the big banks will have to take the loss.
First Republic founder Jim Herbert knows the government is stuck, that it can’t take over. He’s saying he won’t do anything the government wants and will wait it out, because the bank can turn it around. If he hangs in long enough, he can turn things around, and the Fed will get paid back. But we’re talking years.
To turn it around, he will have to keep depositors from fleeing in the short term. If there’s a recession, which I think there will be, interest rates will come down. Then the value of the First Republic’s assets will go up.”
Don Bilson at Gordon Haskett flat out disagrees with Dick Bove. He stated according to CNN’S article called First Republic may not survive, even after two multibillion-dollar bailouts written by Nicole Goodkind that “It’s becoming clearer each day that First Republic is toast.”
In the latest earnings report it was stated by First Republic Bank that it is exploring it´s strategic options. In the article we can read that this has an alternative meaning according to wall street code. In wall street code exploring strategic options means searching for a white knight.
The situation must be very dire if they are looking for someone to come along and save them. They are effectively sitting around twitching their thumbs in the hope that the government or some other party elects to save them.
Yes the government has been known to bail out banks before, but the only reason to bail out First Republic in my opinion is the fear of a chain reaction being set off. We have already seen two prominent banks collapse and if more were to do the same more banks can start falling like dominoes.
David Chiaverini, a managing director of equity research at Wedbush Securities, stated that this particular bank’s situation is completely different from other banks who collapsed or were close to collapsing. The First Republic is very vulnerable to liquidity problems.
To conclude this article, the fate of First Republic Bank remains uncertain, and opinions on its survival vary. While veteran bank analyst Dick Bove believes that the bank will avoid collapsing and can survive without government intervention, others such as Don Bilson at Gordon Haskett disagree and believe that the bank is in dire straits.
The recent drop in stock prices and revenue, as well as the exploration of strategic options, indicate a precarious situation for the bank. Ultimately, only time will tell whether First Republic Bank will overcome its challenges and continue to operate or succumb to financial difficulties like some of its predecessors.
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