Jeor Posted March 24 Share Posted March 24 8 hours ago, Paxter said: Trying to figure out what the playbook would be from now for First Republic and its regulators. At the moment, the bank is avoiding default thanks to a $30bn deposit from its larger competitors and access to central bank liquidity facilities (SVB never enjoyed these luxuries). The size of the bank's deposit outflows since the start of the crisis is not known precisely but is probably in excess of 40%. In theory, the bank could survive from here if deposit outflows stabilize further. The problem is that the bank's net interest margin going forward is completely shot, which turns the bank into a zombie. It will have to pay a market rate on the new funding that has come in (compared to the cheap funding that ran) while the asset side of the business is made up of underwater bonds and mortgages. Earnings in the future are likely to be terrible, meaning that this bank lacks a profitable future, unless it can somehow re-attract that cheap funding. Unless a white knight sees some sort of franchise value in the bank and is willing to recapitalize the bank and absorb losses, I don't really see a happy ending here. Things could drag out for quite a long time thanks to the liquidity on offer, but eventually the bank will book losses and breach its capital requirements. I guess the only other saviour could be a return of cheap funding / massive cut in interest rates. The $30bn bank consortium deposits were only in there for 120 days. That period coincides quite nicely with other challenges like the US debt ceiling fight that doesn't bode well for financial markets in the next few months. Quote Link to comment Share on other sites More sharing options...
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