Banking Crisis Fears Return as Another Large US Lender Announces They Are on the Brink

Major US Bank First Republic saw their shares fall 50% overnight in light of an announcement yesterday that they have endured an outflow of over $100 billion in deposits over the past 3 months.

The $100 billion in outflows for First Republic Bank equate to approximately 40% of their total assets under management.

Sam Stovall, Chief Investment Strategist at CFRA Research, said investors are worried about the possibility of further stress in the regional banking sector.

“I think that in general investors believe [First Republic] is an isolated event but at the same time, the minute they say that, they’re then looking over their shoulder to make sure that no other bank is sneaking up on them. It’s like the cockroach theory, if you see one, you’re going to see more than one.”

As a consequence of the recent large sum of withdrawals, First Republic Bank are reportedly pursuing “strategic options” such as cutting costs in order to solve their liquidity issues. Most notably, this includes shedding 20%-25% of its workforce in the coming months.

This layoff announcement came as First Republic reported poor first quarter earnings, and just weeks after other banks stepped in with a $30 billion rescue package to prevent the regional lender from going under.

Though on a much larger scale, a rescue package was also given to the recently bankrupted Credit Suisse through the use of dollar swap lines. Of course, that didn’t save Credit Suisse, and it’s highly unlikely that this rescue package will save First Republic given the current company turmoil and deposit outflows.

This panic around First Republic Bank has reunited banking fears in the US, best displayed by the broader fall in the US markets this morning, with the Nasdaq dropping 2% and the S&P 500 by 1.6% respectively, its largest daily decline in more than a month.

Analysts are also forecasting the worst drop in S&P 500 company earnings since early 2020, when the Pandemic froze the global economy, meaning it is very difficult to see where the share market will get some short-term rally relief during earnings season.

Unsurprisingly, the KBW Regional Banking index also fell 3.9% to a fresh low for the year, as well as the Consumer confidence measure, which saw a significant decrease to 101.3 for April, well below the anticipated level of 104. 

If even more banks become embroiled in these collapses and we see similar deposit outflows to First Republic, expect to see more pain in the share market and physical assets including commodities and precious metals continue to shine. Why? If you missed it, this is a must read > YOU NEED TO UNDERSTAND THIS – IT'S ALL ABOUT LIQUIDITY

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