May 18, 2024

Contagion spreads: Desperate customers line up outside First Republic Bank to take their money out – after SVB bank collapsed and sent shockwaves through market
  • First Republic Bank customers lined up to withdraw their money Saturday 
  • This comes a day after the collapse of Silicon Valley Bank on Friday
  • Both banks are associated with California’s wine and tech industries 

Dozens of customers lined up outside of a First Republic Bank in northern California on Saturday eager to withdraw their funds in the wake of the collapse of Silicon Valley Bank.

There had been fears following SVB’s demise for First Republic’s future when analysts pointed out the similarities between the estimated value of their assets versus the actual value.  

Brentwood is located in the Golden State’s winemaking community, just south of Napa Valley, with the area’s vineyards, notably Bloomfield, Tamayo and Hannah Nicole, having gained international attention in recent years. 

The news of Silicon Valley Bank’s collapse sent shockwaves through the wine industry. It had been the main financial institution for wineries in California for almost three decades.

The California Department of Financial Protection and Innovation closed the bank on Friday after depositors, concerned about the lender’s financial health rushed to withdraw their deposits. The frenetic two-day run on the bank blindsided observers and stunned markets, wiping out more than $100 billion in market value for U.S. banks.

By Friday night, thousands of wineries found that they were completely locked out of their accounts with no clear timeline as to when they might be able to access their funds. 

First Republic issued a statement on March 10 seeking to calm investors, pointing to its ‘continued safety and stability and strong capital and liquidity positions.’ 

The bank, founded in San Francisco in 1985, has 80 branches in 11 states nationwide – mainly on the West and East coasts.

The main difference between the two banks is that Silicon Valley Bank’s debt was in securities, while First Republic’s was in loans.

Similarly, both First Republic and Silicon Valley Bank rely heavily on customer deposits: in First Republic’s, wealthy individuals, and in Silicon Valley Bank’s, technology startups and venture-capital investors.

With interest rates rising, First Republic’s clients have ample other places to park their cash, and could seek to withdraw.

California Gov. Gavin Newsom said Saturday that he’s talking with the White House to help ‘stabilize the situation as quickly as possible, to protect jobs, people’s livelihoods, and the entire innovation ecosystem that has served as a tent pole for our economy.’

U.S. customers with less than $250,000 in the bank can count on insurance provided by the Federal Deposit Insurance Corp. Regulators are trying to find a buyer for the bank in hopes customers with more than that can be made whole.

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Wells Fargo customers report missing direct deposits amid ‘technical issue’

On Friday morning, Wells Fargo customers reported missing direct deposits in their accounts.

According to ABC 8, Wells Fargo said in a statement that the company is aware that “some customers’ direct deposit transactions are not showing on their accounts, however funds in accounts are accurate and available.”

“We are working quickly on a resolution and apologize for the inconvenience. Customers’ accounts continue to be secure,” Wells Fargo said in response. 

Forbes reported that in the Wells Fargo app, customers are told, “If you see incorrect balances or missing transactions, this may be due to a technical issue and we apologize.”

DownDetector, a website that tracks online outage reports through user submissions, noted an increase in issues just before 8 am Eastern.

The supposed glitch comes the same day that Silicon Valley Bank was closed and seized by the FDIC after customers made a run on the bank and the institution was unable to secure additional capital to make up for a $1.8 billion loss on asset sales.

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Why SVB’s Bad News Clobbered Bank Stocks Like JPMorgan and Wells Fargo

Small things can lead to big reactions, and that seems to be the case with bank stocks on Thursday, as a huge loss at SVB SIVB –60.41%  Financial has caused stocks like JPMorgan JPM +2.54%  Chase, Bank of America BAC –0.88% , and Wells Fargo WFC +0.56%  to get pummeled.

Here’s what happened. Silicon Valley Bank’s parent, SVB Financial (ticker: SIVB), said Wednesday night that it had sold securities from its portfolio for a $1.8 billion loss, while also announcing plans to raise capital via an offering of common and preferred stock. SVB Financial stock tumbled 60% to $106.04 on Thursday, its largest drop ever, and was down 42% Friday at $61.41.

The selling didn’t stop there. The entire banking sector got hammered with the SPDR S&P Bank ETFKBE –4.17%  (KBE) finishing off 7.3% and the SPDR S&P Regional Banking ETF (KRE) closing down 8.2%.

No one has been immune. JPMorgan stock (JPM) fell 5.4%, while Bank of America (BAC) dropped 6.2%, and Wells Fargo (WFC) declined 6.2%. “There is a run on banks today with some of the majors getting hit hard,” writes NatAlliance Securities’ Andrew Brenner.

Smaller banks, though, got hit even harder, with Zions Bancorporation (ZION) down 11%, Comerica (CMA) off 8%, and Key Corp. (KEY) off 7.2%. Even Charles Schwab (SCHW) has tumbled 13%.

Two issues appear to be at play. The first is the losses that SVB had to take on its bond portfolio, calling into question just how much the securities banks own are worth if they are forced to sell. Most of the time, though, banks don’t have to sell.

But with yields rising, holding on to deposits has gotten much harder, and that could force other banks to sell their securities or raise interest rates for depositors, hurting net interest margins. For SVB, problems in Silicon Valley, have also led to companies burning through their cash and causing deposits to dwindle. Now, investors are extrapolating to the rest of the industry.

Some observers are calling the moves an overreaction. Wells Fargo analyst Mike Mayon, for one, says that the issue isn’t one of deposits but the diversity of deposits. SVB’s customers were primarily venture-capital firms, and venture capital has been under pressure recently, forcing companies to draw down their deposits as they burn through cash. That’s likely not the case for bigger banks with more diversified sources of funding. “To us, the larger the bank, the more diversified the funding,” Mayo writes. “To us, this is part of the test that the largest banks, i.e., the ones that caused the Global Financial Crisis, are today the more resilient portion of both the banking and financial systems.”

Seaport Global analyst Jim Mitchell agrees, but worries that the concerns could hang over the sector for a while. “In terms of the stocks, while we believe today’s news doesn’t change the outlook for the large global banks under coverage (and
today’s sell-off seems unwarranted), with company quiet periods approaching and earnings results a month away, this general unease could certainly continue to weigh on sentiment,” he writes.

Sometimes, it takes just one snowflake to start an avalanche.

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Crypto Exchange CIRCLE Admits It had a $3.3 Billion Exposure at Silicon Valley Bank

Another crypto exchange is in the news and it’s not good.

According to CNBC:

U.S. cryptocurrency firm Circle has $3.3 billion of its $40 billion of USD Coin reserves at the collapsed lender Silicon Valley Bank, the company said in a tweet on Friday.

The stablecoin company’s announcement comes after startup-focused SVB collapsed on Friday in the largest bank failure since the 2008 financial crisis, roiling global markets and stranding billions of dollars belonging to companies and investors.

On Twitter, experts were saying CIRCLE was going to fail months ago.

Today CIRCLE announced it will open for business on Monday as normal and is expecting high volume.

On Saturday, March 11, 2023, Circle Financial updated the public about its stablecoin, USDC, and noted that the stablecoin’s liquidity operations will resume normally on Monday morning in the United States. Circle said that the company’s teams would be ready on Monday to “handle significant volume” and that the firm will “stand behind USDC and cover any shortfall using corporate resources, involving external capital if necessary.”

Circle Financial Confident in USDC Stability Despite SVB Failure
Circle, the issuer of the second-largest stablecoin by market capitalization, usd coin (USDC), addressed the public on Saturday, noting that the firm will be ready on Monday to “handle significant volume.” The company discussed the failure of Silicon Valley Bank (SVB) and also emphasized the USDC’s “strong liquidity and reserve assets.” On Monday, the stablecoin issuer noted, “USDC will remain redeemable 1-for-1 with the U.S. dollar.”

This doesn’t sound good. 

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