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1 May 2023,06:14

Weekly Outlook

First Republic Bank’s $100B Deposit Withdrawal Spurred Market Concerns

1 May 2023, 06:14

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To improve its financial condition, the bank’s management considered selling assets worth between $50 billion to $100 billion

In Q1 2023, First Republic Bank experienced a significant decrease in its revenues, net profit, and deposits. Customers withdrew over $100 billion in deposits, causing a 50% drop in FRC shares in just one day. To improve its financial condition, the bank’s management considered selling assets worth between $50 billion to $100 billion. As part of the asset sale, the bank considered offloading long-term mortgage loans and securities to reduce the gap between liabilities and assets. Potential buyers included other large banks that could count on preferred shares or warrants as an incentive to purchase the troubled unit’s assets. Additionally, the bank planned to reduce its headcount by 20-25%, lower executive pay, restructure its balance sheet, and reduce expenses and short-term borrowings. Although other regional banks, such as Comerica Inc. and Zions Bancorp, also reported a decline in deposits during the first quarter, First Republic’s decline was notable due to its significant size.

Nasdaq Futures rose on positive Big Tech earnings

The Nasdaq closed higher, boosted by Microsoft’s strong quarterly earnings, while the S&P 500 and Dow fell due to concerns about the US economy and banking sector. Microsoft’s shares surged by 7.2% due to its strong quarterly earnings and sales, including its artificial intelligence products, which also boosted other tech companies’ shares such as Amazon, Datadog, and Snowflake. While Alphabet Inc also reported positive Q1 results and announced a $70 billion share buyback plan, its shares closed slightly down by 0.1%. The S&P 500 technology index was the sole gainer among the benchmark’s 11 major industry sectors, adding 1.7%. Facebook parent Meta Platforms rose around 10% after the bell on its Q2 revenue forecast that exceeded analysts’ expectations. Activision Blizzard tumbled 11.4% after the UK’s competition regulator prevented its takeover by Microsoft on antitrust concerns.

Euro gained sharply against US dollar

The euro strengthened against the US dollar and Japanese yen before the release of key central bank meetings and economic data. German business morale rose slightly, contributing to positive signs for Europe’s largest economy. Belgian central bank chief Pierre Wunsch made hawkish remarks, adding to the positive sentiment for the euro. The yen was pressured by remarks from Bank of Japan Governor Kazuo Ueda about the need to maintain monetary easing. The euro’s gains against the yen were the most striking, nearing its highest level since late 2014. The US dollar also climbed against the yen.

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