Credit Suisse, First Republic Reveal Just How Bad Banks Are Bruised

Image Credit: Credit Suisse

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Two banks. Same crisis. Different paths.

Earnings season continues apace this week, and Monday’s reports featured critical updates from two banks that were front and center in March’s banking panic. In the morning, Credit Suisse revealed just how dire its final days were before it was acquired by UBS. In the afternoon, the still-standing First Republic Bank showed just how scary things got during the stateside bank runs.

Bleeding Dry

Weirdly enough, Credit Suisse’s final quarterly earnings report proved to be the most profitable in company history, with a roughly $14 billion net profit realized in large part from $17 billion worth of bond write-offs. But that figure obscures the hot mess that was bubbling under the hood: the bank’s wealthy clientele pulled $68 billion in deposits in the quarter, resulting in a 29% dropoff in assets under management.

Credit Suisse’s subsequent liquidity triggered a Swiss government-backed $3.25 billion acquisition by UBS. First Republic, meanwhile, had a slightly different journey. Its problems apparently ran so deep, no other bank dared buy it outright. Instead, some of the sector’s biggest players orchestrated a collective $30 billion lifeline to keep the bank afloat. And, as the only US bank to survive a bank run and report this quarter, Monday’s results made clear just how big a hole the bank finds itself in:

  • The run saw First Republic lose $72 billion in deposits during the first quarter, leaving its total assets under management depleted by over 40% at $104 billion.
  • Remarkably, that figure includes the $30 billion in uninsured deposits from the 11 largest banks in the country. Without that figure, First Republic’s total assets would be down nearly 60% since before the banking crisis.

Don’t expect a UBS-like white knight to ride to the rescue of First Republic in the near future. “The only acquisition scenario that is possible for [First Republic], in our view, is through receivership, in which a would-be acquirer is able to take advantage of an FDIC-assisted bargain purchase,” Wedbush Securities wrote in a note earlier this month. “Therefore, we conclude that [First Republic] will attempt to grind it out as a stand-alone company for the foreseeable future.” That prediction seems to be holding up just fine.

Hobby Lobby: Every crisis is an opportunity… for regulation. And, rest assured, any hint of new regulation will be met with ferocious counter-lobbying. Case in point: Dozens of the largest US banks and associated trade groups increased Washington lobbying funds by nearly 20% in the past quarter, collectively dropping $22 million, according to a recent Bloomberg analysis. Mid-sized regional banks like PNC and KeyCorp — you know, those that are similarly sized to the banks that just imploded — increased spending the most to keep the regulators away. Bet they wish they had that money back right now.