Today’s Banking Bailout

It was another volatile day for bank stocks, with the primary focus being on First Republic Bank ($FRC). ๐Ÿ•ต๏ธ

The bank has been in focus because the market believes it’s in a similar situation to Silicon Valley Bank. It’s a regional bank sitting on a lot of unrealized losses on its books, a high number of uninsured deposits, and a potentially skittish deposit base.

That left it in a precarious position over the weekend. And unfortunately, its late-Sunday efforts to reassure the market that it had $70 billion in available liquidity and access to the Fed’s Bank Term Funding Program were ineffective. As a result, its shares fell over 60% on Monday and have been trading erratically all week. ๐Ÿ˜ฌ

Wednesday morning, its credit rating was downgraded by rating agencies Fitch and S&P, contributing to a 21% decline in its shares. Then late yesterday evening, its executives said they were weighing strategic options to shore up its liquidity, including a sale.

Volatility continued this morning, with shares falling more than 30% in pre-market trading as confidence continued to erode. Unlike Credit Suisse and other banks that received “votes of confidence” from regulators to help stabilize them, First Republic has been left to fend for itself. ๐Ÿค•

At least that was until this afternoon when reports indicated that a group of financial institutions was gathering to deposit $20 or $30 billion into the bank. And then, by the close of business, we heard that eleven Wall Street banks did agree to deposit $30 billion into First Republic. ๐Ÿ’ฐ

The eleven banks are each committing at least a billion dollars and are obligated to keep the deposits at First Republic for at least 120 days. Initially, rumors were that the bank would be acquired, but many analysts say the unrealized losses in its bond portfolio made it unappealing to many suitors. As a result, this alternative was seen as a better option by the banking sector.ย 

Why would a group of competitors chip in to save the bank? The group said in a statement: “This action by America’s largest banks reflects their confidence in First Republic and in banks of all sizes, and it demonstrates their overall commitment to helping banks serve their customers and communities.” ๐Ÿ‘

Ultimately it comes down to confidence. Hopefully, enough confidence in the system has been restored between the government’s efforts and the industry supporting itself to prevent further bank runs. But only time will tell. ๐Ÿ•ฐ๏ธ

And speaking of government support, the banks are taking advantage of it. Access to the discount window, the new Bank Term Funding Program, and bridge loans pushed the Fed balance sheet up by nearly $300 billion.ย 

As we suggested above, the broader problems are far from solved. But at least in the short-term, many believe this should give First Republic Bank and the industry some breathing room to sort through its problems in a less panicky manner. With that said, a 20% after-hours decline in $FRC shares signals there’s still a lot of skepticism out there. ๐Ÿคจ

We’ll all just have to wait and see what tomorrow brings… ๐Ÿ‘€

Amazon Enters The Generative AI Race

With some estimates valuing the generative artificial intelligence (AI) market at $110 billion by 2030, Amazon is getting involved in the action. ๐Ÿค–

Today the tech giant announced Amazon Bedrock, which provides a way to build generative AI-powered apps using pre-trained models from startups like AI21 Labs, Anthropic, and Stability AI. However, rather than taking on the risk of building its own AI models, it’s allowing third parties to host their models on Amazon Web Services (AWS).

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LVMH Smashes Another European Record

Luxury goods giant LVMH is the first European company to surpass $500 billion in market value. ๐Ÿ’ฐ

The parent company’s brands include Louis Vuitton, Moet & Chandon, Hennessy, Givenchy, Bulgari, and Sephora. And its 17% rise in first-quarter sales more than doubled analyst estimates. That, plus a profit from recurring operations of 21.1 billion euros, marked its second consecutive year of record results. ๐Ÿ“ˆ

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A Bank On The Brink

Ever since the collapse of Silicon Valley Bank (SVB), First Republic Bank has been investors’ next major worry.

For those not caught up on the regional bank’s journey, the chart below highlights some key moments over the last two months. ๐Ÿ‘‡

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Time’s Almost Up For $TUP

Many businesses were failing ahead of the pandemic, but the COVID-19 financial market frenzy gave them a second life. As rates normalized, however, investors refocused on their poor business fundamentals and sent shares lower again. ๐Ÿ•ต๏ธ

That’s happened with Bed Bath & Beyond, AMC, and others, including…Tupperware Brands.

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