First Republic Bank is no longer actively looking for a buyer as potential suitors are concerned about the losses they'll have to add to their books with no government backup.
The move was controversial because most depositors weren’t small savers but Silicon Valley portfolio companies of venture capital and private equity firms—many of them contributors to President Biden—who had deposits well in excess of $250,000.
In the banking system, deposits swelled, and in order to attract customers, the banks began making loans to riskier clients like unprofitable tech outfits and at more favorable terms.When inflation set in and the Fed tightened monetary policy with higher interest rates, just the opposite happened. Meme stocks and crypto corrected and are now well off their highs. Meanwhile, early-stage VC companies faced tighter lending standards and struggled to make a profit and pay back past borrowings.
The banks themselves held capital in the form of treasury debt and mortgage-backed securities, both highly sensitive to interest rates. Then rumors began the spread about the health of such banks over their loan portfolios. Depositors yanked their money from accounts, forcing the banks to sell their under-water government bonds at a loss. When banks began unloading bonds at depressed prices that led to the swift implosion of Silicon Valley and Signature banks earlier in the month.
The optimism may be misplaced, say bankers who have looked at First Republic’s finances and those of other troubled institutions. They believe many banks have similar balance sheet woes where their loan portfolios are depressed by declining real estate values and lower profits of borrowing companies who received loans at very favorable terms . For instance, Facebook founder and Meta CEO Mark Zuckerberg received a paltry 1.5% fixed-rate mortgage on a loan for $5.
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