{
  "p": "ons",
  "op": "post",
  "title": "\"First Republic Joins the Living Dead \"",
  "url": "https://archive.is/jgT7L",
  "author": "Aaron Back (@AaronBack)",
  "body": "## The bank can survive but not thrive for the foreseeable future because of its rescue’s costs\n\n![](https://archive.is/jgT7L/7eb1fb251919901695e95bf0b7e9702eeb14cd61.jpg)\n*First Republic says it has a combined $45.1 billion of cash and unused available borrowing capacity.\nPHOTO: SPENCER PLATT/GETTY IMAGES*\n\nBy [Aaron Back](https://archive.is/o/jgT7L/https://www.wsj.com/news/author/aaron-back)\nApril 24, 2023 5:57 pm ET\n\n[First Republic Bank](https://archive.is/o/jgT7L/https://www.wsj.com/market-data/quotes/FRC)  appears to have gotten out of immediate liquidity trouble, but it has dug itself a deep profitability hole.\n\nTo cover deposit outflows, the lender had to borrow heavily at high rates from the Federal Reserve, the Federal Home Loan Bank and JPMorgan Chase & Co., in addition to the $30 billion that JPMorgan and  [10 of the other largest banks](https://archive.is/o/jgT7L/https://www.wsj.com/articles/jpmorgan-morgan-stanley-and-others-in-talks-to-bolster-first-republic-4f9eeb76?mod=article_inline)  deposited at the bank in an effort to rescue it. Total borrowings peaked at $138.1 billion on March 15,  [declining to $104 billion](https://archive.is/o/jgT7L/https://www.wsj.com/articles/first-republic-lost-100-billion-in-deposits-in-banking-panic-7e1bd86c?mod=article_inline)  as of April 21, the bank said in its quarterly earnings statement on Monday.\n\n![](https://archive.is/jgT7L/24342d47db95747cfa3eea3c1d4db3feeabb8e1d.png)\n\nIt said it now has a combined $45.1 billion of cash and unused available borrowing capacity—enough to cover more than double its remaining uninsured deposits, excluding that big deposit infusion from its rescuers. This suggests it faces no near-term threat to its survival.\n\nThat is the good news. The bad news is that all borrowing came at much higher rates than ordinary deposits, squeezing profitability. Net interest margin, or the difference between the rate the bank earns on assets and what it pays for funding, fell to 1.77% in the first quarter from 2.45% the prior quarter. Analysts had on average expected a margin of 2.05%, according to Visible Alpha—a significant shortfall. Annualized return on equity for the first quarter nearly halved, falling to 6.55% from 11.9% a year earlier. The bank’s shares fell around 20% in after-hours trading.\n\nTo rebuild its profitability,  [First Republic](https://archive.is/o/jgT7L/https://www.wsj.com/market-data/quotes/FRC)  has to start shrinking its balance sheet and paying down that expensive funding, which is what it said it would do on Monday. How exactly it will get there is less clear: Many securities or loans on its balance sheet could likely be sold only at a steep discount, generating losses.\n\nOn a conference call with analysts, Chief Executive Michael Roffler said the company is moderating loan volumes and focusing on loans that it can sell in the secondary market. Loans made in this way won’t stay on the balance sheet, and the proceeds from their sale can go to debt reduction. Remaining loans and securities on the balance sheet would have to roll off as they mature.\n\nIt is far from clear how long this process may take, and management gave no indication of this on its brief call, which included no opportunity for analysts to ask questions. Without any way to gauge the pace of improvement, investors have a tough task assessing  [the true value of the bank](https://archive.is/o/jgT7L/https://www.wsj.com/articles/how-much-is-first-republic-worth-c9bbaa8c?mod=article_inline).\n\nWhile the worst fears have been allayed, First Republic’s stock doesn’t have a clear path to recovery until that changes.\n\nWrite to Aaron Back at  [aaron.back@wsj.com](mailto:aaron.back@wsj.com)"
}