patrick.net

The banks are all insolvent because they loaned crazy amounts of money for houses which are truly not worth anything near what they sold for. Loans at artificially low interest rates drove the prices, which is typical of bubbles. In a sane world, the equivalent rent would determine the house price.

I suspect this will play out as ever higher inflation as the Fed prints ever more money to cover those bad loans made at super-low interest rates.

It's ultimately the fault of the Federal Reserve for manipulating interest rates to be way too low for way too long, giving buyers the impression that houses were worth 10x a normal annual salary instead of 3x.

The Federal Reserve is a criminal organization which should not exist. We should all simply use silver and promises of silver which are marked down immediately on increased perception of default risk.

Glad I held off on buying shares of First Republic. I was going to wait a little longer to see it drop further and buy 100 shares. 100 shares would allow me to sell monthly covered calls.

Annnnnd it's gone

https://www.macrotrends.net/stocks/charts/FRC/first-republic-bank/market-cap



So who exactly lost that $38 billion? That is, who were the main shareholders? Seems like more than 94% was institutions, not individuals:

94.15% % of Shares Held by Institutions

Next up: Bail out for retirement funds.

Print dat money!

https://finance.yahoo.com/news/first-republic-stock-investors-face-wipe-out-analyst-says-190031923.html

First Republic stock investors face 'wipe-out,' analyst says

https://finance.yahoo.com/news/first-republic-jumbo-mortgages-brought-155820982.html

First Republic’s Jumbo Mortgages Brought On Bank’s Failure

First Republic stock investors face 'wipe-out,' analyst says.

https://finance.yahoo.com/news/first-republic-stock-investors-face-wipe-out-analyst-says-190031923.html

zzyzzx says

I wonder if this clown put that "FRC as a very good bank" as a strategy to delay any sell off until he and connected Congress insiders could sell off their shares.

Can't destroy a physical currency without popping a few bank bubbles. Question is, who is going to control the CBDC that will be foisted?

HeadSet says

zzyzzx says

I wonder if this clown put that "FRC as a very good bank" as a strategy to delay any sell off until he and connected Congress insiders could sell off their shares.

Doing the opposite of what crammer says pays off big time, each and every time. Been doing this for years now.

Cramer gets all the stupid fat ladies to run to one side of the boat claiming there's a buffet, then profits in private from the boat keeling.

zzyzzx says

Accounting for over a decade plus of inflation it's not remotely as bad. It's bad for sure. Given the banks locations there's more to this than meets the eye.

Signature was into crypto. I'm sure the others were as well.

Founded in 2001, Signature Bank was a full-service financial institution based in New York with 40 branches in New York, Connecticut, California, Nevada and North Carolina. It notably was one of only a handful of banks allowing customers to deposit cryptocurrency (crypto) assets, a business it entered into in 2018.

https://www.bankrate.com/banking/signature-bank-collapse/#:~:text=Founded%20in%202001%2C%20Signature%20Bank,it%20entered%20into%20in%202018.

Also another side note. You move cash to a new bank when you leave a state 9 out of 10 times. The CA exodus is real. Guys like Rogan getting $200M and leaving the state is disastrous for local/regional banks.

This seems to be a CA and NYC issue for now. Both of which are losing population. And generally wealthy population. I've already seen this in IL. I don't think this will turn into a national crisis. It seems to be a combo of Crypto and people just leaving the region. If you lose 60% of value on your crypto and the bank accepts it, the bank has no money. Not much to it. People moving and investing in bull shit spreadsheets.

It’s spooky. Thousands of banks are underwater. Let’s not pretend that this is just about Silicon Valley Bank and First Republic. A lot of the US banking system is potentially insolvent - Professor Amit Seru, Banking Expert, Stanford University

Oh I'm pretty sure the whole US banking system is insolvent. The majority of bank assets are residential mortgages at artificially low interest rates. Now that rates have gone up, the market value of all those houses has gone down.

Banks cannot possibly recover the amount the have lent out. This makes them insolvent. They cannot pay back their depositors in full.

The Fed will continue to buy up those mortgages with newly printed money, keeping inflation high. So we will all pay for the Fed's colossal mistake in keeping rates so low for so long.

The Fed should not exist at all. It is a criminal scheme to manipulate interest rates for the benefit of the 0.1%. We should simply use physical silver by weight, and debts for physical silver by weight (for the convenience of paper/credit cards), where the debts are constantly re-evaluated and marked down on any suspicion of looming default.

I don't know about stuff outside of my region.

Anyone who paid attention would have known that SVB and First Republic were weak based on particulars of our region.

Now I've put some focus on a Santa Rosa-based regional bank. It's website says it's a "very strong bank." Why do they have to say that about themselves on their web page?

From what I read on a third party website, their "strong" assets are mainly CRE loans in the Sonoma County region. Hmmm.... you mean overpriced ®eal estate? The bank CEO boasted in a 2018 interview with the local newspaper about the bank's stellar recent growth, in other words, during an anomalous time of ZIRP.

What brought my attention to them is how for several months now they've been brokering CD's with above market rates. Do they need capital to roll over liabilities? I wonder.

I asked a friend who lives in Santa Rosa if she heard any rumors. She said no, but she would not invest in a local bank in Santa Rosa because "lots of businesses closing in Sonoma".

And this from UK Telegraph Finance Editor Ambrose Evans Pritchard:

https://finance.yahoo.com/news/half-america-banks-already-insolvent-133000968.html

B.A.C.A.H. says

And this from UK Telegraph Finance Editor Ambrose Evans Pritchard:

https://finance.yahoo.com/news/half-america-banks-already-insolvent-133000968.html

The horrible truth is that the world’s superpower central bank has made such a mess of affairs that it has to pick between two poisons: either it capitulates on inflation; or it lets a banking crisis reach systemic proportions. It has chosen a banking crisis.

The correct choice. This was inevitable when the FED chose to keep interest rates stupidly low for so long.

Patrick says

Oh I'm pretty sure the whole US banking system is insolvent. The majority of bank assets are residential mortgages at artificially low interest rates. Now that rates have gone up, the market value of all those houses has gone down.

Banks generally don't hold mortgages. At least residential. Fannie had a YOY drop that was minimal. Still recorded $3B+ in profit last quarter. I haven't looked at Freddie. Remember that they were only losing money for about 12 months during the housing crash. It happens fast. It's the bad timing people that eat the shit and cause all the losses paying high interest. I still don't think we're in that territory. Too much lessons learned from the housing crash. Keep your low interest rate and don't move.

This is a tech and crypto crash in my opinion. People tied up to much money in shit investments that weren't cash flow positive and didn't appreciate. I'd compare it to 2000-2001. Except now there's crypto layered in there with the bro boys thinking they'll make millions with an excel file.

WookieMan says

This is a tech and crypto crash in my opinion.

This is has been till now a tech and crypto crash.

WookieMan says

Banks generally don't hold mortgages. At least residential.

I know that mortgage securitization was a huge thing in the 2008 crash, but I just read that the majority of First Republic's assets are residential mortgages.

Commercial real estate is a huge drain on banks right now as well:

https://mises.org/wire/paying-piper-time-clean-latest-malinvestments

The Austrian business cycle theory teaches us that low interest rates manipulated by the central bank lead to malinvestments, which are cleared when the central bank lets rates rise, reflecting a truer cost of capital. A real-time example is happening in the United States commercial office real estate market. Combine that with the government’s covid lockdowns, which forced employees to work from home. Now, employees never want to change out of their pajamas while on the clock. Notwithstanding Jamie Dimon’s call for JPMorgan Chase & Co. employees to return to the office five days a week, most employers have acquiesced to their employees, and the need for office space has diminished. ...

Union Bank is trying to sell its headquarters tower at 350 California in San Francisco, California, and lease back a portion of it. The bank listed the building for sale last year at $250 million but pulled that listing and relisted it in February for 52 percent off—$120 million.

Another lender, Wells Fargo, tried to sell its 550 California tower in 2022 for $160 million. The bank pulled the listing and will try again this year at a discount of 67 percent off the original listing price, around $53 million, according to the San Francisco Business Times. ...

Other commenters to Drzyzga’s post mentioned converting the Fifth Third Bank building into apartments. At least one successful investor disagrees. “It’s one asset class [office buildings] that just has to get redone, and redone meaning demolished,” said Hayman Capital Management’s Kyle Bass. As far as converting office to residential, he told Bloomberg, “You have to jackhammer rebar and concrete. You have to re-plumb everything. And when you finish it, it just doesn’t feel right. You wouldn’t want to live there.”

Meanwhile, the apartment market may have a coming supply problem. When rates were low, builders went wild. ...

Some might say, “Well, all real estate is local.” Sure, but higher interest rates and tight lending conditions are everywhere.

https://fortune.com/2023/05/01/first-republic-bank-mortgage-lending-liabilities/
Years later, after Herbert left San Francisco Bancorp and founded First Republic, his new bank became known for handing out interest-only mortgages at rock-bottom rates to borrowers with high incomes and exceptional credit scores. Typically, they didn’t have to start repaying the principal for a decade.
Demand for the loans surged during the pandemic as wealthy buyers sought mortgage deals that would allow them to keep the bulk of their money in higher return investments. The rush helped First Republic double its assets in four years. It also contributed to its collapse.
...
At the center of First Republic’s balance sheet was a $137 billion problem that made it a particularly hard sell: a giant book of those low-interest mortgages, mixed with some others, whose value had been severely dented since the Federal Reserve started raising interest rates.
At the start of the year, First Republic said its mortgages would be worth about $19 billion less than face value if sold off. It also had another $8 billion or so in markdowns on other loans as well as unrealized losses on bonds.
...
JPMorgan now owns about $173 billion of First Republic’s loans, $30 billion of securities and $92 billion in deposits.

Patrick says

Other commenters to Drzyzga’s post mentioned converting the Fifth Third Bank building into apartments. At least one successful investor disagrees. “It’s one asset class [office buildings] that just has to get redone, and redone meaning demolished,” said Hayman Capital Management’s Kyle Bass. As far as converting office to residential, he told Bloomberg, “You have to jackhammer rebar and concrete. You have to re-plumb everything. And when you finish it, it just doesn’t feel right. You wouldn’t want to live there.”

It the end result is something affordable, people can overlook a lot. People just need to get used to things like a lot less windows in some of these converted buildings. Some of these to be potentially converted buildings supposedly have more then the normal amount of parking when compared to a normal residential building as well.

Patrick says

Oh I'm pretty sure the whole US banking system is insolvent. The majority of bank assets are residential mortgages at artificially low interest rates. Now that rates have gone up, the market value of all those houses has gone down.

Banks cannot possibly recover the amount the have lent out. This makes them insolvent. They cannot pay back their depositors in full.

https://www.zerohedge.com/markets/its-spooky-stanford-professor-warns-thousands-us-banks-are-insolvent

In an interview with The Guardian, Seru was more precise about just how many banks were burning through their capital buffers and were underwater. The estimate is shocking: Almost half of America's 4,800 banks.

"It's spooky. Thousands of banks are underwater.

"Let's not pretend that this is just about Silicon Valley Bank and First Republic. A lot of the US banking system is potentially insolvent."

Since monetary tightening works in long lags (9-12 months), many of the rate hikes over the last year have yet to filter through the real economy. In the coming quarters, the US banking system will face its toughest challenge yet, as tightening lending standards might spark more breaking.

Patrick says

The majority of bank assets are residential mortgages

Is that true? It seems quite a few banks like Discover have lots of very high-rate credit card interest coming in. Credit Card rates were high even when mortgages were low.