It was found that 102 billion dollars (136 trillion won) of customer deposits withdrew from First Republic Bank of the United States, which was on the brink of bankruptcy, in the first quarter of this year (January to March). The bank’s share price plunged 22% in after-hours trading right after the earnings announcement on the 24th (local time) due to a more serious deposit run-off than the market expected. The U.S. banking crisis triggered by the bankruptcy of Silicon Valley Bank (SVB) last month is a real phase, but it is pointed out that it is proof that it is still unstable.
Global credit rating agency Moody’s Mark Zandi, chief economist, said, “It looks like the banking crisis has been overcome, but the economic impact is just beginning to appear.”
After the closure of SVB and Signature Bank, First Republic’s bank runs (large-scale deposit withdrawals) were concentrated amid market anxiety that there was a high risk of collapse. Like SVB, San Francisco-based riches such as CEO Mark Zuckerberg were the main customers, so about 70% of the deposits exceeded the deposit protection limit of $250,000. The market’s attention was focused on the announcement of the first quarter earnings on the same day as the bank was like a barometer of additional banking crisis.
First Republic Bank deposit attrition was more severe than market forecasts of $60-70 billion. As the bank run concentrated last month, the bank deposits decreased by 41% from 176.5 billion dollars (about 236 trillion won) as of the end of December last year to 104.5 billion won (about 140 trillion won) as of the end of March. Without the 30 billion dollars that 11 U.S. banks, including JP Morgan, put in emergency deposits to prevent the spread of the banking crisis, the amount of deposits withdrawn would be 102 billion dollars, a 58 percent decrease.
Net profit of $270 million in the first quarter was also down 33% from the same period last year, and sales were down 13%. This is in contrast to large US banks such as JP Morgan and Bank of America, which showed earnings surprises with rising deposit-deposit margins.
On the conference call that day, First Republic, which did not receive any questions from analysts, said, “We will reduce the number of bank employees by up to 25% and cut executive salaries,” and “we are considering other strategic options.” It is interpreted as meaning even the sale of the bank.
Small and medium-sized regional banks in the U.S., which suffered the same crisis at the time of the SVB bankruptcy, have managed to overcome the crisis, but stock prices are still riding a roller coaster. When Western Alliance, which announced its results on the 20th, announced that it had increased by 1.2 billion dollars (1.6 trillion won) this month after having withdrawn 6 billion dollars (8 trillion won) in the first quarter, its stock price soared 24 percent. It is evaluated that the volatility of Zion’s stock price, which announced lower-than-expected first-quarter results on the 21st, fell by about 7%.
Moody’s, a global credit rating agency, has recently downgraded the credit ratings of all 11 regional banks, including US Bank, Giants Bank, and Bank of Hawaii, as they believe there is great uncertainty around local banks. Western Alliance, which performed better than expected, also fell two notches. Moody’s attributed the downgrade to the banks’ “deteriorating funding and operating conditions.”
Concerns are also spreading that continued anxiety about regional banks, which are supporting small businesses and commercial real estate in the US, will eventually lead to a recession. Robert Kaplan, former president of the Federal Reserve Bank of Dallas, recently said, “Many small businesses are getting calls from banks telling them that they can no longer borrow money and that they need to recalculate their lending rates.” degree”. The Wall Street Journal (WSJ) also analyzed that a ‘slow motion’ crisis like the late 1980s, when about 3,000 S&Ls went bankrupt over several years, could come.
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Source: Donga
Mark Jones is a world traveler and journalist for News Rebeat. With a curious mind and a love of adventure, Mark brings a unique perspective to the latest global events and provides in-depth and thought-provoking coverage of the world at large.