First Republic Bank (FRC)

05/01/2023





Again, concentration investing involves higher risk of significant loss without the protection of diversity.



Each individual investor should always consider their own investment goal, risk tolerance, investing span and objectives for their investment positions. Investing in securities involved the risk of total losses. Investors should always consult with financial professionals.




04/24/2023





After market close today, First Republic Bank announced its first earning report for first quarter of 2023 and took no question from analysts and investors. It reported that depositors pulled $100 billion out the bank, and outflow of deposit was almost stop at the end of March. However, its balance sheet shows that its size of loan portfolio does not decrease but increase more than 3%. It indicates that First Republic is unable to sell its loans to other parties or unwilling to sell it at bargain price. It is most likely that First Republic Bank is trying to stay alive and stand-alone. It will be very difficult. The Bank has to bring in new insured deposit, maintain its cash reserve, cut expenses while maintain its traditional service while interest margin is squeezed by higher interest expense from monetary policy and borrowing from Federal Reserve, JP Morgan Chase and other banks. We expect interest margin will be narrower next quarter.


Addition to its difficulty to increase capital, should big banks be willing to extend the time frame for $30 billion deposit? If not, it is unlikely that First Republic Bank is able to find such huge sum of money to fill the hole. Furthermore, economy is showing more signs of weakness. First Republic's loan portfolio will further deepen into the hole if real estate market gets more troubles.


It will be a prolong struggle to get back $100 billion of deposit, stay alive and rebuilt itself up. Only the investors who are prepared and willing to lose the entirely investment of First Republic Bank should stay with the bank.



Again, concentration investing involves higher risk of significant loss without the protection of diversity.



Each individual investor should always consider their own investment goal, risk tolerance, investing span and objectives for their investment positions. Investing in securities involved the risk of total losses. Investors should always consult with financial professionals.




03/30/2023



First, I would like to apologize that a run-away-from-FRC was not recommended. The most regrettable thing for a sergeant is to lead a squad into a killing field and be slaughtered. Any excuse should not be allowed for no action.


Thanks to the Federal Reserve and the FDICs’ swift action and 11 big banks' support, First Republic is still standing. Nonetheless, The options for the First Republic have become smaller and smaller. The secretary of Treasury has expressed support for depositors but not banks. So this option is out. The Federal Reserve is considering the expansion of the emergency lending program to support failing lenders. It also indicates that the government is not willing to bail out First Republic but willing to give it more time. Third, the big banks and hedge funds are not interested in investing into First Republic or acquiring it. 11 banks who injected $30 billion as uninsured deposits are expecting First Republic to pay it back. Therefore, there are only two options that First Republic Bank would have.


First, it is falling to be another victim of mishandling risk management and bank run. Of course, nobody wants to see that happen even the government due to the fact it might trigger another confidence crisis and bank run. Second, it is probably the best option that investors of the First Republic can have. First Republic is to sell a big chunk of its assets and shrink its operation by half at least.


In the past two weeks, depositors withdrew at least $70 billion out of First Republic. All the capital infusion from giant banks and the government to stabilize First Republic are meant to be short term which means First Republic has to pay it back. In order to pay it back, First Republic must sell a large portion of its loan portfolios and debt securities. The pains First Republic is having (investors too) is the market/buyers demand a significant discount for such assets sales. FDIC just agreed to sell a large portion of loans and deposits of SVB to First Citizen Bank of Raleigh at the discount of 23%. 


At the discount rate of 23% (with FDIC sharing potential losses from SVB asset sales with First Citizen), First Republic must sell $91 billion worth of assets (on balance sheet of 12/31/2022) for $70 billion of capital. It would cause $21 billion of loss for the First Republic and would wipe out all the shareholders' equity entirely. Another matter is the federal fund rate. The rapid increase of the federal fund rate will continue to pressure First Republic’s net interest margin and make it very hard for the bank to be profitable under current circumstances. The margin between net interest margin and non-interest expense is likely at 0.44% and 0.5%. The room for continuous squeeze from the federal fund rate will pressure this margin and cause operation losses. Headcount reduction should be in the process at First Republic. 


The assumptions above are to provide a directional picture of the First Republic. A more complete understanding of the bank has to wait for the first quarterly report of 2023. First Republic will be shrunk to half at least in size if it succeeds in surviving, and it will take years to regain its status prior March 9, 2023. 





Again, concentration investing involves higher risk of significant loss without the protection of diversity.



Each individual investor should always consider their own investment goal, risk tolerance, investing span and objectives for their investment positions. Investing in securities involved the risk of total losses. Investors should always consult with financial professionals.





03/13/2023





WARNING: Investors should caution the statements in the followings which are related to First Republic Bank (FRC). It contains assumptions, speculations. Investors should always follow their own researches and studies to guide their investment decisions. Investors should not invest in or continue to hold FRC if they feel uncomfortable or can not sleep at night.


FRC: The crisis of bank runs are real and are happening. It is real scary like 1930s, and investors should be afraid. Such action taken by depositors will lead to serious liquidity problems to FRC. If FRC does not have enough liquidity for withdraw, the faith of FRC will be same as SVB and Signature. Especially, FRC's strategy is to attract lots of wealthy clients for their deposits. 


FRC has few options to fulfill mass cash withdraw. It can get capital from bigger banks and Federal Reserve which FRC announced it had more than $70 billion cash in hand on 3/12/2023. Also, suspend of dividend for common stock and preferred stocks is expected until this liquidity crunch is passed. Fire sale of its loan portfolio is last thing investors want to see because it indicates the withdraw is running deeper. And it will hurt company's deposits and loan portfolio further, and FRC will take longer period of time to recovery if it passes this crunch. Furthermore, investors should expect that FRC will generate less loans if not nothing at all in order to preserve cash. It can not be certain how long or how deep the depositors will continue to withdraw their savings.


However, this fearsome crisis also represents a rare opportunity for investors if high risk is tolerable.



Again, concentration investing involves higher risk of significant loss without the protection of diversity.



Each individual investor should always consider their own investment goal, risk tolerance, investing span and objectives for their investment positions. Investing in securities involved the risk of total losses. Investors should always consult with financial professionals.






02/01/2023





It is becoming more obviously and clearer than stock market that the future action from Federal Reserve is set, reducing the pace of fund rate increase and holding the fund rate at higher level until the inflation is totally under control. Eventually, the Federal Reserve will have to reduce the fund rate in the future to a level that US consumers will feel comfortable.


Either inflation is under control or economy goes to recession, the Federal Reserve will have to reverse the course of increased fund rate. In other words, the depressed price of fixed income securities will have to walk along side of interest rate and to raise their price to match their interest/dividend yield to the interest rate market. (the yield rate of a security is opposite to its price, yield = interest or dividend paid / price)


Furthermore, the banking industry will enjoy the temporary higher rate and more mortgage applications when fund rate is lowing. Of course, investors would think what if the economy goes recession and housing market goes deeper. However, First Republic Bank is likely to avoid such downfall.  




Again, concentration investing involves higher risk of significant loss without the protection of diversity.



Each individual investor should always consider their own investment goal, risk tolerance, investing span and objectives for their investment positions. Investing in securities involved the risk of total losses. Investors should always consult with financial professionals.






12/16/2022






Again, concentration investing involves higher risk of significant loss without the protection of diversity.




Each individual investor should always consider their own investment goal, risk tolerance, investing span and objectives for their investment positions. Investing in securities involved the risk of total losses. Investors should always consult with financial professionals.





11/25/2022




First Republic Bank is a time-approved bank. It has navigated through dotcom bubble of 2001, housing bubble and crash of 2005-2011, financial crisis of 2008. In those time of crisis, it continued to grow their deposit base and loan portfolio. Even company thrived when dotcom bubble busted and many company in CA failed in which company has its majority of customers. 


First Republic's strategy is to focus on high income and wealth individual and households. Those borrowers rarely default their loans and more likely have plenty of liquid assets. First Republic not only bring in those ample liquid assets as deposits for loans generation also is able to attract wealth managers for its customers from loan base. Company's unique services are famous among high income and wealth clientele. Company's focus and business model are very straight forward and its executions are very focus and consistent. 


First Republic grows its business not rapidly but with above average rate for long span of time. Long term investors should benefit well with their success.





Each individual investor should always consider their own investment goal, risk tolerance, investing span and objectives for their investment positions. Investing in securities involved the risk of total losses. Investors should always consult with financial professionals.