So, the F.D.I.C. , Treasury Dept. , Office of the Comptroller of the Currency, and White House officials, sanctioned the takeover yesterday(Sunday, April 30) of San Francisco headquartered bank First Republic. Later today, customers will be able to access any and all funds on deposit with First Republic through JP Morgan Chase, the new owner.
First Republic? Who? When did it emerge from the sea foam as a financial institution of some size and reputation? How did it accumulate billions in deposits? Good location, for one. As the tech industry moved north from Silicon Valley/San Jose, and progressed from hardware to software, those tech startups didn't need real estate; all they needed was a cubicle or cubicles to house drones who sat in front of their screens and encoded computers with their ideas that they dreamed up over night while thinking creatively over drinks in a bar South of Market Street near Oracle Park and the UC Medical campus. All these folks from elsewhere needed a place to stash their cash while enjoying the lavish spending of VC money on their fantasies. Hmmmm. So, all this cash was stashed in/with First Republic Bank.
The bank flourished and expanded into the suburbs around the Bay Area. Offices opened here and there and it seemed like a normal banking path to greatness and prosperity for stockholders. But this bank prospered when interest rates were almost zero. Decades of "cheap" money mesmerized bankers into thinking this would never end; here was finance as it could be and it should be. Put your money in our bank, and we'll watch it, carefully, while paying you 0.0015% interest on your money(the going rate) that we will lend at some rate north of 4-5%. Although, in a period of the late teens, aggressive lenders brought mortgage rates down under 3%. Imagine that? Under 3%! Never would a boomer ever believe he would see such rates in his lifetime. Refi, refi, refi: that was the mantra. Mortgage holders rushed to refinance their 5,6, and 7% mortgages. Fees, who cares? Bankers loved the action; loved the cash flows; loved the "deal making". Mortgage brokers got fat and sassy. Covid arrived and things took on a different cast.
Hmmmm. Now what? No more home buying; no more work; no more money in motion. Ooops. Inflation was discovered after the White House, with support of major economists, opened the money spigot and flooded the nation with cash. Have a disaster? We'll send cash. Need public health programs, we'll send cash. High unemployment in your town, we'll send cash. Don't worry about inflation; this is temporary, a Covid response mechanism. That's all. And then, Jerome Powell announced that we have "Inflation". Real this time. Rates must be raised. The FED will oversee the new rate increases that will suggest that the FED will do everything to stop inflation in its tracks. 1/2 point here, 1/2 point there, everywhere a half point. Hmmmmm. What about the bonds? Yes, those bonds owned by all those banks.
Silicon Valley Bank: Goodbye. Signature Bank: Goodbye. First Republic Bank, Goodbye. And, there will be more fallout, sure.
Have a nice Monday morning. May 1, 2023. MAYDAY.
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