Smallish Philadelphia bank Republic First was seized by the FDIC late Friday–the banks 32 branches will reopen as Fulton Bank on Saturday. Republic First has assets of about $6 billion.
The cost of the failure to the FDIC will be around $670 million–in my opinion this will NOT cause a major special assessment to banks in future quarters.
It is my understanding that the bank had a very high level of uninsured deposits, which is always dangerous–my suspicion is that deposits were ‘fleeing’ at a pretty fast rate. The bank also held a large unrealized capital loss on their bond portfolio
Here is the FDIC announcement.
At first I thought the bank thing lately is overblown. Now I am starting to think differently. Here is my back of the cocktail napkin thoughts….
There are some serious possible long-term fundamentals that need to be addressed;
1. Value of older loan portfolio at NIRP/ZIRP (asset revaluation)
2. Value of securities (possible revaluation if IR stay high)
3. New lending environment…higher rates, higher cost of capital, higher charge offs, yada yada ie permanently higher coc
The first two create a doom loop where as capital is getting hammered so too the Bank equity is getting hammered. MORE capital may be needed to be/stay SOLVENT. Not sure where that comes from or at what cost. Giant holes in equity can be a serious problem for banks.
I may start to get of rid my last banking issues. I usually don’t like to invest in banks in general, so no big deal for me.
For others? Dunno, but a crap ton of our beloved pfds and bbs are from…wait for it…banks!
YMMV DYODD
Beloved or not, ~75% of all preferred universe is bank/financials. Most of the rest is poorly capitalized companies papering their balance sheet together, and a smattering of reits. The days of IBM, Exxon, and Texaco’s of the world are long gone from preferred world.
I dont have any real personal fear of banks, I just dont typically own them, and do not currently now either.
Grid what happened to WAFDP and TFINP ? you get tired of flipping them ?
Yes Charles that was a long time ago, ha.
The more time that goes by the more things mature. The more time that goes by the more banks are able to do new loans at better rates for themselves. The more time that goes by more securities get closer to maturity and start coming back to their original par value.
I think what I said above is correct. So how many years have to go by before this big worry of interest rates going up for banks becomes a moot point as things cycle through for their portfolios? 3 yr? 5 yr? 7 yr? 10 yr?
Below is a presentation Republic First posted a year ago. The ticker was FRBK as it was publicly traded before the NASDAQ delisted it last August (looks like it was still trading on the Expert Market for a penny as of 4/26/24).
https://www.otcmarkets.com/stock/FRBK/overview
Shows these company presentations often don’t mean bubkis. As Tim stated, they got killed on their portfolio of low yielding government securities accumulated during ZIRP. My personal favorite part of the presentation was when they claimed their total equity was $333M as of 3/21/23, which of course “excluded” AOCI (unrealized losses on bond portfolio).
A consumer or business would have needed to be completely asleep to have any uninsured deposits at the bank…and yet 60% of their deposits were uninsured as of June 2023!
https://s26.q4cdn.com/813151955/files/doc_presentations/2023/Jul/Republic-First-Bancorp-Investor-Presentation-vFINAL.pdf
Kid Twist – the one common denominator between all of the recent bank failures starting with Silvergate is that they all had a portfoio of underwater US Goverment Agency bonds to include MBS. Deposit flight is what tipped things into bank failure.
Any bank that is not TBTF has the same basic problem in terms of underwater assets.
Which is a direct result of Basel 1 2 3 4…..its forced all the banks to own the same securities. This is how it was explained to me.
It use to be banks specialized in different areas, in which they had expertise. Now many of those assets dont count at market price towards NW ratios. SO all if a sudden banks had better rates from holding what are obviously questionable assets, and avoiding area they felt had value. If stock exchange traded (equity) only get 25% valuation but drachma’s get 100% then guess what you never buy the stock.
oh my!
It looks like this bank was on a long term down slide, but it is still a reminder that regional banks present a unique set or risks.