First Republic Bank Opinion

Introduction:

First Republic has been in the waters recently for being the potential next "Silicon Valley Bank". With a rampant Witch Hunting of poor performing banks First Republic may be the next one to get lynched.

Point 1:

First Republic was recently offered a bailout by other Banks and the FEDs totaling 30B (SOURCE). However, these loans are not designed to be used as a profit generator rather just as a temporary "Band-Aid". These loans have interest rates of about 4.57% - 4.85%(SOURCE). But, First Republic main revenue generator "Residential real estate" accounting for 61.6% of loans it had given out, only yielded 3.18%. So First Republic is borrowing money to borrow money from the FEDs.

Point 2:
In the event of a bank run, First Republic is not primed to deal with it. Their short-term liquidity is about 1.65B. Their Debt Security Held-To-Maturity is about 3.1B, which may mask larger losses. For SVB they realized about a 20% loss in value from their HTM(From what I recall). Their deposit liability totaled 104B. 

Point 3:

Poor plan for recovery, they've stated that they plan on shifting their target customers from the wealthy individuals to a more general market. (SOURCE) They plan on serving a larger audience which requires more employees but First Republic is actually cutting their headcount.

Conclusion:

The other banks may be reluctant to let First Republic fall, they see it as a domino effect and in order to not let the domino fall further someone has to stop the domino on its path. JP Morgan offered 70B emergency liquidity (SOURCE). Along with the FEDs creating a special system allowing Banks to use T Bonds as collateral (SOURCE), it's a all hands on deck operation. However, a poor business model will fall regardless of the amount of sticks used to prop it up.

Comments

Post a Comment

Popular posts from this blog

Tencent DCF Analysis

Introduction: Tencent is one of the largest and most influential companies in China, it created a super app, WeChat that is used by more than a billion users daily. With its close ties to the Chinese government, Tencent has flourished into a large company with a global presence through its multi-faceted investment ventures in areas such as Gaming, FinTech, and Cloud Services. It is the early architect of the “Ecosystem Model” which many successful companies such as Google, Apple, and Tesla have replicated. the unique thing about this business model is that they already have built out the necessary infrastructure and there are built-in customers within the super app, so there is no need for additional customer acquisition cost and any subsequent addition to the super app will have very high margins. Market: Tech Crackdown China has begun to crack down on the technology industry for many reasons, such as anti-competitive behavior and increased concerns over privacy and security. This ha...
Read more

Google (GOOG) DCF Analysis

Image
Introduction: Google was the first company I've ever valued, back then when I valued this company I remember being excited that I had finally created my first financial model without any components of my excel blowing up. Every single number wasn't a "Hmm 5% looks good." And I thought that my DCF was airtight. I posted it onto Reddit and the comments thrown me back down to reality. " These numbers make absolutely no sense" and " I suggest you look more into dcf analysis". My reaction: 😔😔. But, I marched on and 6 months and 7 DCF later, I revisited my GOOG DCF. My first reaction was "It looks like what a toddler does with a calculator pressing random numbers." So to retackle and improve my DCF again was definitely a fruitful lesson. Perhaps I may revisit this 1 year from now! REVENUE: Cloud %Rev, Cloud is an area gaining massive traction due to how much convenience it adds, And the switching cost of cloud is massive, having to port over ...
Read more

Old Chang Kee (SGX:5ML) DCF Analysis

Image
INTRODUCTION: OCK is one of the most popular fast-food chains in Singapore that began its business in Singapore. Most well known for their extraordinary Curry Puff, this is a well-loved homegrown brand. However, between the very niche Singaporean-centric menu and the low margins items OCK has much more problems to face in its path forward. REVENUE: My rationale when forecasting revenue came from, “Singaporeans have been eating more and more…it boils down to people being spoilt for choice and opting for convenience over health…people are more likely to grab dessert or a snack between meals, just because they can.”( SOURCE ) “98 percent of Singaporeans were found to snack, with 1-in-2 being frequent snackers”( SOURCE ) I opted to only account for Singapore’s outlets when forecasting. The revenue from OCK Singapore accounted for 99.5% of OCK’s entire revenue. When forecasting the Number of Outlets, from the 2023 Annual Report “However, with the re-opening of the economies...rental co...
Read more