First Republic Bank Crashing and Burning

I'll have to wait until I'm laid off before I can tell you stories.

Tell now.

Let's just say the execs knew this was coming. They all dumped their stock at the same time.

Toxic culture.

Murder time!

Bump. Where are you, First Republic insider?

DEAD TO ME

Dumb fucks like SVB didn't understand Finance 101: asset-liability match funding.

That's like the Amish competing in the Indianapolis 500.

SVB and First Republic Bank did not understand the fundamental rule of rich people: they are loyal to their money and no one else. Largely unnecessary bank crashes brought upon by the nature of their clientele.

R5 When they go down for good, I'll share my stories.

By the looks of things, that shouldn't be long.

Oh come ON r9!!!! You are a total tease and it’s rude!

My aunt has a couple of CD's there. She was tripping, but she's not over $250K so she'll be fine.

R11 - everyone will be fine.

There is no risk to deposits anymore.

R12 First Republic has thousands of clients with over $250,000 in liquid accounts. They indeed are at risk.

No, they aren't.

The White House will make sure they aren't.

There will be no haircut on deposits over $250k.

R14 The government hasn't yet stepped in. We don't know yet.

The government has always stepped in to make depositors whole

R16 Not always. See 2006-2007.

Those were the old days, R17.

Now that bank runs are tweeted, no bank - not even JP Morgan - could survive. That has fundamentally changed the notion of what deposit insurance is supposed to protect.

The government will make sure that the depositors are kept whole, either by providing unique lending structures, arranging buyouts, or other steps

R18 I hope so. If not, we're going to see severe repercussions throughout the economy.

Now that it looks like First Republic is headed for failure, I'll disclose a few juicy morsels about my time there. I can't share details about what was going on in my specific department yet (which was a key player in where the bank is today), but here's some stuff to whet everyone's appetite:

The worst thing to happen to the bank was the installation of Gaye Erkan as CEO. She first came to the bank as part of a consulting firm that was working on a project. Jim Herbert, the CEO, hired her away and made her a co-risk manager. There are rumors that Herbert and Erkan were more than just business colleagues, and I tend to believe that, even though I acknowledge I have no solid evidence. Erkan and the other risk manager were at each others' throats, so Erkan was taken out that department and elevated upward. She had a reputation as a maniacal bitch - a financial world version of Amanda Priestly. I personally witnessed some interactions she had with her staff, and I can affirm that she was beyond awful. Verbally abusive, demeaning, degrading.

When Herbert went on medical leave, he appointed Erkan as co-CEO. People were not happy, and neither was the Board. They canned her after 6 months. Again, abusive behaviors contributed to her departure, as did rumors that she was carrying on an affair with another top executive, who left the bank around the same time Erkan did. They had to pay her $10 million to get rid of her. After she left, the bank's CFO was installed as CEO, and things rapidly started going downhill after that.

More later, including the story of Herbert's idiot son, who Herbert put in charge of a major lending function at the bank...

Drama!

Greenwich Village First Republic at Sixth Avenue and Tenth Street has a waterfall display in front window.

R22 Most of the banking offices do. First Republic also opened a huge complex at Hudson Yards just last year. I wonder what's going to happen to that once they go under.

There are many, many alternatives to parking all of your money at one bank. They should ban people from depositing more than 250K at one place if they are going to wind up bailing out all deposits, no matter how large.

[quote] You are a total tease and it’s rude!

Perhaps, but I still got a chubby.

I agree, R24. Why set a $250K limit on insured deposits if they're ALL insured by the USG? Also, it's moral hazard to the extreme.

There is no 'risk free' asset anymore -- not even US Treasuries. You pays your money, you takes your chances.

[quote] Amanda Priestly

R20 Those are some juicy morsels! But, Amanda Priestly? The name's Miranda Priestly.

R27 My bad. I don't know what I was thinking.

Erkan has zero credibility in the linked interview. How could Greystone take her on so soon after the First Republic debacle? I reported to a CEO with the same vibes. A lethal mix of Beth Jarrett, Alex Forrest, and Cruella de Vil. She too went full Harpy crash and burn.

The reason the other outside banks tried to bail them out with a lifeline is to avoid contagion of fear rippling across the industry and spill into their own banks. Because of public outcry about the last bailout, our government now charges hefty fees, much higher interest, and installs heightened oversight for assuring the deposits are kept whole. The US will promptly commandeer the bank if necessary, and sell off pieces to whoever will buy. This strategy was a response developed in tandem with the stress test during the last banking crisis.

I believe there are shadowy parts of investing the banks were involved with that the government will not disclose yet- because they either don’t want copycats, whole segments of investment would fail if exposed, or they are gathering further evidence against the bank executives, and don’t want to go public until they find absolutely everything or proof of collusion with other banks.

A lot of the recent crash of crypto value also has to do with the government and IRS recently being able to retroactively identify an individual’s entire transaction history of anonymous crypto spending, once it’s converted to US dollars- to prosecute tax evaders.

[quote]to prosecute tax evaders

OK by me

A very very good summary

R29 This is typical Gaye - completely scripted and rehearsed, with the phony smile thrown in from time to time. I saw it dozens of times in her speeches at company meetings and during quarterly updates.

Her story about her departure from FRB couldn't be filled with more BS. She wasn't "thinking about leaving;" she was forced out because she was a toxic presence, and it cost the bank dearly to rid itself of the stank.

R29 Bitch was literally canned overnight. There was no "thinking about leaving" for her.

More on First Republic. I'll focus on the company culture today:

The bank paid a lot of lip service to treating employees well and embracing DEI, but in reality, it was all just smoke and mirrors. The relationship managers at the bank, who made lending deals with clients, made OBSCENE amounts of money, and most were horrifically awful people, verbally abusive to their staff members, and completely uncooperative with other departments, usually citing the fact that "they were too busy making money for the bank" to be bothered to do anything else. There were some RMs who had a number of complaints filed against them from staff members, but nothing was ever done to discipline them or modify their behavior, again because they made a lot money for the bank.

Then there was the CEO's son, James Herbert. A bigger moron you'd be hard pressed to find. A long-haired blonde, good looking California surfer dude who loved to wear his shirts with two buttons undone to show off his chest, daddy put him in charge of a lending function in the bank designed to target "up and comers" - young people, usually in tech, who had strong future earning potential. James didn't know squat about management, and it was the people reporting to him who were really keeping the department afloat. I was in a project meeting with him once, and I used a common banking acronym. He stopped me and asked me what that meant. It was all I could do to keep from rolling my eyes. Even worse, it's just been revealed that he earned $3.5 million in 2021 as head of that department.

I'm hoping I can tell you stories about my department soon...

Oh...and also, Jim Herbert the CEO was rumored to have had an affair with his assistant, who he later promoted to head of Human Resources. And she, like, all the other executives at the company, started dumping her stock around the time of the Silicon Valley Bank collapse.

An EA was in charge of HR?

R37 Yup.

JPMorgan is acquiring FRB.

Pretty soon there will be only two companies left in the world: Amazon and JPMC.

Today should be a fun day at work.

Where the F was the Board of Directors in all this? Jeez.

Right R40?!

I realize this had to happen, but it shouldn't have been Chase, even if they were the highest bidder. They are already the largest bank in the US by quite a bit.

It should have gone to US Bank or PNC.

R42 Many of the Board members were also Jim Herbert's cronies, so that explains their lack of oversight to a certain extent.

Still, the Board has no control over the day-to-day operations and decisions of the bank. They're advised quarterly. This collapse happened so quickly, there was little they could have done to right the ship.

R44 I understand the point, but this didn't "suddenly happen." The seeds of this were much earlier, the bank's inability to deal with rising interest rates. That's a fundamental Treasury function within a bank, isn't it? And while I agree that a Board has no control over day-to-day, I always thought that the advisor/overseer role was fairly comprehensive. Even if emergency Board meetings had to be called.

R45 And like I said, many Board members were Herbert's cronies, so they probably put their trust in him to make sure the bank was safe and didn't question things they should have.

Late Stage Capitalism 101

NOBODY KNOWS ANYTHING

I'm at work right now, and it's chaotic to say the least. Pretty sure I'll be jobless by next week, and I'll share info about my department at that time.

I’m sorry to hear ghat r48. Best of luck.

R49 Thank you, but I've actually been planning to retire for the past year now, so this will be okay. I'm more concerned about my colleagues, especially the youngers one with families.

R50 FRC's stock rise always struck me as too good to be true. As well as SVB's. And I guess it was. Sad for the younger employees who were attracted by the prospects of building equity through stock appreciation.

R51 I can't wait to tell you a story about FRB's stock and my boss. :-)

I was living in San Francisco when FRC was founded (1985). Its positioning seemed attractive, catering to the higher end customer. Nice logo, nice locations, etc. It's been interesting to see its growth into other parts of the country, still catering to the wealthy. Obviously they didn't count on the fact that money walks, and loyalty means nothing if the customer (even the high end) sees any risk to their deposits. I've always thought that management operated with a certain "we know the secret sauce" that obviously they didn't. Sad. R52 I would not be at all surprised to hear your stock about FRC's stock and your boss.

Whoops Story, not stock. :)

I have small checking and savings accounts with First Republic (my main accounts are with a credit union) and spoke with a FR rep this morning. So far, everything is going smoothly. My accounts will eventually be (supposedly) seamlessly migrated over to JP Morgan. So far, all my automatic payments and deposits are going through FR just fine (which is good because this month is the beginning of a new payment cycle.) I'm not a huge fan of JP Morgan, so I'll probably slowly switch my accounts and automatic payments to my credit union. Sign of the times, and it's inconvenient and tedious to reorganize my stuff, but I'm not upset. News media reporting is always so "panicky drama queen," but I'm guessing that's intentional. Keep people anxious and afraid so they're easier to control and manipulate.

R55 in this case I'm sure there no risk for the depositors or checking account holders at First Republic, perhaps some mild inconvenience. But anyone who holds their stock...

[quote] But anyone who holds their stock...

R56 Yep, equity holders wiped out, as is typical in a bank seizure. I'm guessing same must be true for FRB corporate debt holders, since JPMC didn't buy that in the deal.

Republicans are only interested in stealing America's cash. When they talk about rolling back "unnecessary red tsp" this the shit that happens. They hated Dodd Franks. They rolled back significant parts and VOILA! THEY RIP OFF BANKS. How many here remember the S and L implosion of the Reagan years? Republicans should NEVER get close to bank regulators again.

[quote] Republicans should NEVER get close to bank regulators again.

R58 Republicans should never get close to ANY power, ANYwhere, EVER again....for the thousands of reasons that we've all discussed ad nauseam in other threads. Vote, people.

lol

R45 the Board Vice Chair, Katherine August DeWilde, was an early employee of the bank and very senior among management (describes herself as having co-led the bank) before she moved into the Vice-Chair role. To your point about the Board being Herbert's cronies. Seems also that the Board was created for its prestige factor far more than its ability to challenge management when the train is heading off the track, as an effective Board ought to be able to do. Underscore the adjective "effective."

First Republic's collapse was sparked by 'jumbo mortgages' with interest-only loans at rock bottom rates for the wealthy such as Goldman Sachs' COO and a music exec - who could wait a DECADE before paying back millions

The failed bank sold loans with rock bottom rates to rich clients including Goldman Sachs President John Waldron and music mogul Todd Moscowitz, the former CEO of Warner Bros Records, who both purchased multimillion dollar New York City homes, property records show.

These 'jumbo mortgages', a staple of First Republic's business model for decades, were a great deal for buyers - but became a huge burden for the bank when the Federal Reserve began to aggressively hike interest rates in 2022.

First Republic was essentially sitting on huge losses as it clawed back a measly rate from mortgages worth around $137 billion, while the value of the debt plummeted.

The same market forces contributed to the collapse of Silicon Valley Bank, whose bet on low-interest, long-term bonds backfired when the Fed hiked rates and the value of their investments tumbled.

John E Waldron, president and chief operating officer of Goldman Sachs, took out an $11.2m mortgage with First Republic for a New York City apartment. The loans were a great deal for customers but turned into a nightmare for the bank, which lost billions on the low-rate deals

Property records in New York City reveal Goldman Sachs President John Waldron took out a $11.2 million mortgage from First Republic on a condo unit in the luxury 15 Central Park West building.

Waldron purchased the unit in June 2020, when the Fed's interest rate was just 0.08%. The rate of Waldron's mortgage is unclear, but it reportedly had a ten year interest-only period.

In June 2022, music executive Todd Moscowitz snapped up a penthouse in the trendy Manhattan neighborhood of Tribeca with a First Republic mortgage of around $8 million. His loan also had a ten year interest only period.

A Bloomberg analysis found these mortgages were also snapped up by other financial bosses, tech executives and a gallery owner to purchase property in New York City.

First Republic handed out interest only mortgages worth $20 billion in San Francisco, New York and LA alone in 2020 and 2021, the analysis found. Customers actually stood to make money as the value of their properties increased by more than their payments.

The bank was happy to dish out the loans because the borrowers were wealthy and had good credit scores. It was the low interest rates that became a problem.

The value of the loans depleted as Federal Reserve interest rates increased and by the beginning of 2023, First Republic estimated its mortgage collection was worth $19 billion less than their original value.

R65 it brings to mind First Republic's ads which always profile these very high net worth folks gushing about the strength of their "relationship" with the bank. Well, that didn't end well for FRC (and its shareholders), did it?

st week, First Republic's share price was decimated after it revealed it lost $100 billion in deposits in the first quarter of 2023.

First Republic's collapse also came despite a $30 billion funding injection from 11 larger banks in March to try and stabilize the sector.

The bank's stock closed at $3.51 on Friday, a fraction of the roughly $170 a share it traded for a year ago. It fell further in after-hours trading.

First Republic still opened as usual on May 1, with clients continuing to receive uninterrupted service, but it will be rebranded by JPMorgan.

JPMorgan has taken on approximately $173 billion of loans and $30 billion of securities, as well as $92 billion of deposits, including $30 billion of large bank deposits.

Jamie Dimon, chief executive officer of JPMorgan Chase & Co, who said of the purchase of First Republic: 'Our government invited us and others to step up, and we did'

President Joe Biden said on Monday that 'taxpayers are not on the hook' following the First Republic collapse.

'These actions are going to make sure that the banking system is safe and sound,' Biden said of the JPMorgan rescue.

First Republic's 84 branches opened on Monday as branches of JPMorgan Chase.

Before this year, First Republic was the envy of the banking industry. Its well-appointed branches served warm cookies to its clients — who were almost exclusively the rich and powerful.

Its bankers lured in wealthy clients with low-cost mortgages and attractive savings rates in order to sell them on higher profit businesses like wealth management and brokerage accounts.

In return, the wealthy rarely defaulted on their loans and parked substantial sums of money in the bank that could be lent elsewhere.

But that business model of catering to the rich became a liability with the collapses of Silicon Valley Bank and Signature Bank.

These banks had large amount of uninsured deposits — that is, deposits above the $250,000 limit set by the FDIC. As was the case with Silicon Valley Bank and Signature Bank, First Republic clients with large accounts were quick to pull their money at the first sign of trouble.

2008= you housepoors borrowed more money than you can afford to pay back for your hideous mcmansions and are directly responsible for a global depression.

2023, there is no crisis. The feds will make sure the wealthy don't lose a nickel and will keep on being wealthy.

Pray for the RICH. The filthy rich who don't pay their share. The filthy rich who don't pay criminally when they have legal woes. The rich who get free charging stations for the Electric Cars. And pray for the poor senators and elected officials who go to DC poor but somehow get rich and become millionaires on a 174,000 a year salary. Even after they leave they seem even richer. Why? How does that happen?

John E. Waldron - Goldman Sachs President and Chief Operating Officer John Waldron is President and Chief Operating Officer of The Goldman Sachs Group, Inc. He is a member of the Goldman Sachs Management Committee and Chair of the Firmwide Client and Business Standards Committee and Firmwide Reputational Risk Committee

Well, no one got any work done yesterday. It was mostly people wondering aloud when the other shoe was going to drop, in between making phone calls to recruiters about job openings. Even our manager expects our entire department to be let go.

Sorry to hear you’re going through this, r73. By all indications I think you’re going to end up in a better place.

The welfare queen is worth 250 million and yet it still borrowed 11 million to purchase a luxury home

[quote]Even our manager expects our entire department to be let go

Hard to imagine that Chase doesn't already have a similar/duplicate department given their size, no matter what your position is R73.

R74 To be honest, if I get let go, it'll be a relief. I've been considering retirement for a while now, and the environment has been very toxic for the last couple of years. This could actually be the best thing.

Thanks, R32 and

[quote] this didn't "suddenly happen." The seeds of this were much earlier,

@R45

All I really saw this morning were the rightwingnuts--Matt Allen, Laura Loomer, The Gateway Pundit, etc-- and NEWSWEEK ranting about Democratic congresswoman Lois Frankel who sold shares of FRB a bit ago and then purchased shares of JPMC recently. That combination proves to them that she had insider info and that makes here worse than Clarence Thomas.

Or, her financial manager was...paying attention...(?)

Well, the staff in my department has now transitioned from "stunned" to pissed off. We had a meeting on Friday with our manager to talk about what's happening with the takeover, and one of my colleagues, who is usually quiet and reserved, went off and started going on about how we were deceived and lied to. Then other people started chiming in and basically told our manager to shut the fuck up in the nicest possible terms.

The meeting ended quickly, everyone left the conference room angry, and our manager went to her office, shut her door, and didn't come out for the rest of the day.

The only good thing is there is hiring going on and if you want to work, opportunities are available

R79 Just noticed this headline on news sites: "SEC probing First Republic Bank executives for insider trading, Bloomberg reports." I would be surprised if something doesn't come of this.

R81 I saw that, too, and my boss is one of those executives being investigated.

Might be nice to see your soon to be former boss imprisoned. I have fantasies about seeing some of the people I worked for locked up.

R83 I will admit that I'm taking pleasure in watching this unfold.

Last Monday, when the bank was taken over by JP Morgan Chase, the FDIC swooped in and demanded to meet with my boss. My boss was in a conference room with four FDIC representatives for two hours. When they left, my boss was "outraged" that they would "demand" a meeting. It was kind of fun to watch.

Warren Buffett moved into cash and sold 30 billion dollars of Berkshire Hathaway. It appears he is banking on US default. That 30 billion will balloon with the Debt Ceiling crisis. Warren talks to Republicans.

I’m still following the headlines, r81, to see when they go after the Board.

[quote]Warren Buffett moved into cash and sold 30 billion dollars of Berkshire Hathaway. It appears he is banking on US default.

Patently false. Stop pulling shit out of your ass.

Berkhire has like $130 billion in ST investments. You can't park that much at any bank. Or any 50 banks. And Buffett talked about how Berkshire invested in T-bills at 5.9%. He said the ceiling will be raised. It's in the second half of the video.

Warren Buffett cashed out 30 billion dollars in stocks held by Berkshire Hathaway. You connect the dots.

SEC reportedly investigating First Republic executives for potential insider trading

R88, if you're gonna troll, you need to up your game here.

BRK's cash and ST investments have barely changed over 4 years. They were meaningfully higher @ 12/31/21 than they are now.

Now, shoo!

Just catching up on this thread, hadn't seen it earlier. The point, R44 and R45, is that at least two of the Board members (James Herbert and Katherine August-deWilde) have been with the bank since its inception, it seems, so they clearly should have had a decent understanding of the bank's operations and risks, even if they're now on the Board. And another Board member was an HBS professor (Boris Groysberg), who certainly should have had some understanding of Board governance and its responsibilities. As a (burned) shareholder (yes, shame on me, but fortunately it was a small number of shares), I sure hope that their stock trades are investigated. And that there is consideration for a clawback of their Board compensation and stock gains.

What's odd to me...

It sure seems inconvenient that the financial backbone of tech is crashing six years after its most vocally supportive wing of the government has been bitching and moaning about social media interfering with elections.

It's really healthy for democracy that the politicians, who regulate the business end of these companies, don't have a personal and professional interest in controlling what they do and where they do it. Even apart from their deeply entwined private financial interests.

First Republic's former CFO, who was promoted to CEO after Gaye Erkan's ass got canned last year, will be testifying before the House Financial Services Committee tomorrow.

Should be interesting. I worked with him a couple of times. An extremely introverted dude. Don't know how he'll do before a congressional committee.

I hope he spills the beans, R93. Because I'm sure there are many beans to spill.

R94 He doesn't have the spine for it. Plus, he's also being investigated by the SEC for dumping his First Republic stock, so he's going to have to be very careful what he says from a legal standpoint.

I watched the hearing, and let me say:

1) Roffler looked AWFUL! He looks like he's aged about 10 years in 3 weeks.

2) His prepared speech sounded exactly like it was crafted by First Republic's marketing department. I heard all this BS about the bank's "wonderful colleagues" and "superior service" in every goddamn presentation any of the bank's executives ever did. It's tired, it's old, and above all, disingenuous.

3) He kept blaming the bank's collapse on the "contagion" that happened after SVB's collapse. Bullshit. He saw it coming. All the executives did. That's why they dumped their stock.

4) He flat out lied when he said he wasn't in the bank's risk meetings. He was a member of the fucking risk committee! He was in all the quarterly meetings. He knew exactly what was going on.

5) His wimpy presentation and flimsy excuses didn't surprise me at all. Dude is indeed spineless.

The whole system is rotten to the core. Privatize the profits, socialize the losses.

I was let go last Thursday. Hallelujah! Retirement, here I come!

Even better, the Chief Risk Officer is gone, too.

Did you receive a severance

A small one, yes. I'm just socking it away in savings.

I'm just about ready to tell the story about what happened to me while working at First Republic...

It was a bank for rich people who got spooked and started withdrawing their money. Classic run on the bank situation.

R101 There's so much more to the story. A toxic culture where executive management ignored trouble, scandal, harassment, and unethical behaviors, believing the company was untouchable. I *will* write about it.

I interviewed at FR back in the day and one of them was with with a hot daddy bear. Job didn't work out, thankfully, but the sexual tension-filled interview is a fun memory.

The chief risk officer, who failed here in a spectacular way, no doubt has a position lined up elsewhere. Unflushable. Unashamed.

R100 cannot wait to hear the story. I know a number of people who have been on the board and in leadership roles, was once a customer, and I’ve always questioned a number of things about the place.

Sounds like First Republic really attracted the best clients too. I read this article last night about the Hilton Union Square and Parc 55 hotels in SF, both huge, Grace same types. Their owner has stopped paying the loan on the properties and is walking away. That loan originated with FRB, so now Chase will take ownership.

I had financial issues in my younger days, primarily because of irresponsible behavior. I became delinquent on a credit card, owing approximately $5000. I was hounded by collectors, my credit rating suffered, housing was difficult to find. These people walk away from $750M and it’s unclear exactly what repercussions they’ll ever face.

Same goes for the board at FRB that ignored the shenanigans and idiocy of bank executives. Just because the bank found a happy ending courtesy of JPMC, they’re not being sued, arrested or at the very least ridiculed for their inept, lazy, carelessness?!? Give me a fucking break!

Ever since 2008 I’ve been saying we need to have a revolution here in America. These felonious bank and financial executives, the stockbroker dude-bros, the snake-oil tech startups… not all, but the predatory ones that steal money from the working class and suffer no consequence… these people need to be hauled up in front of the bull statue on Wall St. There, a guillotine will be erected, charges will be read, and we can watch them decide which one of them will lose his/her head to pay for the crimes of them all.

I definitely experienced this double standard way back in 2008, too big to fail. All those executives who ran companies too big to fail received bonuses and promotions and other job opportunities. Meanwhile I struggled to find employment for years.

Like today, the rapid and unexpected movement of large amounts of capital nearly caused the Roman banking system to collapse in the first century. Roman banks survived then because the imperial government injected large amounts of money to stabilize the credit market. And, again like today, that action was both necessary and quite unpopular.

Rome’s crisis began in A.D. 33, when anonymous informers accused Roman senators of enriching themselves by loaning excessive amounts of money, in violation of a law that mandated senators hold a certain portion of their fortunes in Italian real estate. An official investigation, according to the historian Tacitus, determined that “not a single (senator) escaped guilt.