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Market Flash Update – First Republic Failure

First Republic Bank: Another One Bites The Dust

Total market value of select banks

Another day, another bank failure – well, not to that extent, but it is the fourth regional lender to collapse in the US since early March. On 1 May 2023, California-based First Republic Bank went under, making it the second-largest bank failure in US history (knocking Silicon Valley Bank into third position). JPMorgan subsequently won an auction to buy over the bank for $1.9 billion only!

Ultimately, First Republic was another casualty of rapidly higher interest rates triggered by the Fed’s battle against inflation. The pointers put forth in our earlier updates on Silicon Valley Bank and Credit Suisse continue to hold true today (do refer to the articles for further details).

We’ve observed contagion risks being contained so far. But be prepared, as this is likely not the end of the story. More volatility is expected going forward, especially as the Fed is widely expected to raise (its final?) interest rates by another 0.25% this Wednesday, 3rd May 2023. The man on the street need not worry too much – depositors are safe…but it is a different story if you had invested in one of those financial institutions that have gone down, and those that are going to go down.

Rest assured, however, our portfolios have not suffered any permanent capital loss. We remained well prepared for such uncertain times so that our investors can ride through the market volatility and enjoy the eventual recovery that always follows such periods.

If you’re still worried, you may want to pay more attention to JPMorgan’s CEO Jamie Dimon. He is optimistic, saying on an analyst call after taking over First Republic that “there may be another smaller one [bank failure], but this pretty much resolves them all.” Of course, big banks like his are benefitting in this environment, acting like an opportunistic investor on the prowl for opportunities. As an investor, you may also do the same by topping up regularly during this period.

Market Flash Update – First Republic Failure