Fears mounted Friday over the future of First Republic Bank, following Friday’s collapse of Silicon Valley Bank and the ensuing domino effect.
Silicon Valley Bank, the 14th largest in the United States, specialized in supporting technology companies and has been hit hard by both economic conditions and inflation.
It passed to government control on Friday and executives hope another financial institution will step in to keep the bank afloat.
Other banks were rocked by the demise of Silicon Valley Bank, including First Republic, the 16th largest, whose shares plunged 50 percent on Friday before closing down 15 percent.
First Republic issued a statement late this morning seeking to reassure investors, noting its “continued safety and stability and strong capital and liquidity positions.”
First Republic Bank tried Friday to reassure uneasy investors after the collapse of Silicon Valley Bank
A Brinks worker walks to a truck after leaving Silicon Valley Bank in Santa Clara, California, on Friday.
The bank, founded in San Francisco in 1985, has 80 branches in 11 states across the country, primarily on the West and East coasts.
Michael Roffler, President and CEO of First Republic
Analysts expressed alarm when they noticed that First Republic, like Silicon Valley Bank, had a large difference between the fair market value (the estimated value) and the balance sheet value (the actual value) of its assets.
Silicon Valley Bank’s difference was in debt securities, while First Republic’s was in loans.
Similarly, both First Republic and Silicon Valley Bank rely heavily on customer deposits: at First Republic, wealthy individuals, and at Silicon Valley Bank, tech startups and venture capitalists.
With interest rates rising, First Republic customers have plenty of other places to park their cash and might try to withdraw it.
First Republic told nervous investors that their deposits were safe.
“Sources beyond a well-diversified deposit base include more than $60 billion of available and unused lending capacity at the Federal Home Loan Bank and the Federal Reserve Bank,” they said.
Regarding its financial position, First Republic said it “has consistently maintained a strong capital position with capital levels significantly higher than regulatory requirements to be considered well capitalized.”
A worker is seen Friday telling customers in Santa Clara, California, that the bank is closed.
People line up in front of the Silicon Valley Bank in Santa Clara, California, on Friday.
The Federal Deposit Insurance Corporation (FDIC) seized SVB’s assets on Friday after depositors, mostly tech workers and start-ups, triggered a run on the bank following the shock announcement. of a loss of 1,800 million dollars.
With around $209 billion in assets, SVB is the second largest bank failure in US history after the collapse of Washington Mutual in 2008, which had $434 billion in assets when it collapsed.
The collapse could decimate the tech sector as many startups use SVB as their only account and creditor.
Investors are only insured up to $250,000, and like tech companies, many Silicon Valley workers use the bank for their personal cash flow and mortgages.
New York businessman Brad Hargreaves warned that the failure of SVB would have a “massive impact on the tech ecosystem.”
Santa Clara police officers leave the Silicon Valley Bank headquarters in Santa Clara, California, on Friday. The Federal Deposit Insurance Corporation (FDIC) seized SVB’s assets today after depositors, mostly tech workers and start-ups, triggered a bank run following the shocking announcement of a loss. of $1.8 billion.
People try to gain access to the Park Avenue branch of Silicon Valley Bank, in New York City, on Friday.
‘SVB was not just a dominant technology player, but highly integrated in some non-traditional ways. We will see some things in the next days or weeks, ”he tweeted.
‘One, SVB became incredibly integrated into the lives of many founders. Not only the bank and lender of his start-up, but also provided personal mortgages and other financial services. Quite a hassle for the FDIC (or eventual buyer) to relax.
‘Two, any ‘uninsured’ balance in SVB, those over $250K, are in jeopardy. The FDIC plans to pay them ‘while selling SVB’s assets’. Many new companies banked exclusively with SVB as *this was a debt covenant*!’
Hargreaves said many chief executives faced a difficult decision yesterday, either withdraw their cash and default on their debt or risk losing everything if the bank fails.
‘Many chose to stand their ground as the complete failure of SVB seemed far-fetched. Now they may not be able to make payroll next week,’ he said.
‘Unpaid wages pierce the corporate veil, so boards are *incredibly* sensitive to hiring workers they may not be able to pay. Expect mass layoffs later today, no later than Monday.
SVB’s share price plunged 66 percent premarket before trading was suspended.
Police were called to a branch in Manhattan after dozens of desperate depositors turned up to try to withdraw their funds.
The FDIC said Friday that customers would have full access to their insured deposits, up to $250,000, no later than Monday morning.
The federal agency said it will pay uninsured depositors an anticipated dividend within the next week.
As the FDIC sells off the bank’s assets, future dividend payments may be made for the uninsured funds.