Finance

Bankers’ pitch to save First Republic

Published

2 years ago

April 26, 2023

The best hope for avoiding a collapse of ailing lender First Republic hinges on how persuasive one group of bankers can be with another group of bankers.

Advisors to First Republic will attempt to cajole the big U.S. banks who’ve already propped it up into doing one more favor, CNBC has learned.

The pitch will go something like this, according to bankers with knowledge of the situation: Purchase bonds from First Republic at above-market rates for a total loss of a few billion dollars – or face roughly $30 billion in Federal Deposit Insurance Corp. fees when First Republic fails.

It’s the latest twist in a weekslong saga sparked by the sudden collapse of Silicon Valley Bank last month. Days after the government seized SVB and Signature, midsized banks hit by severe deposit runs, the country’s biggest lenders banded together to inject $30 billion in deposits into First Republic. That solution proved fleeting after the depth of the company’s problems became known.

If the First Republic advisors manage to convince big banks to purchase bonds for more than they are worth — to take the hit of investment losses for the good of the banking system, as well as their own welfare — then they are confident that other parties will step up to help the bank recapitalize itself.

The advisors have already lined up potential purchasers of new First Republic stock in that scenario, according to the sources.

Crucial days

First Republic shares resume trading after brief halt

These investment bankers are now seeking to create a sense of urgency. CNBC’s David Faber, who first reported on the rescue plan Tuesday, said that the coming days are crucial for First Republic.

The bank’s stock has been in free fall since disclosing Monday that its deposits dropped a staggering 41% recently, leaving it with $104.5 billion in deposits, including the infusion from big banks. Analysts covering the company published pessimistic reports after CEO Michael Roffler opted not to take any questions after a brief 12-minute conference call.

“Now that the earnings are out, once you’ve got a window to act, it’s time to do it,” said one of the bankers, who asked for anonymity to speak candidly. “You never know what will happen if you wait, and you don’t want to be dealing with an emergency situation.”

To help a deal happen, advisors may offer warrants or preferred stock so that banks involved in the rescue can reap some of the upside of saving First Republic, the sources said.

Spokespeople for First Republic and the FDIC declined to comment for this piece.

False starts

For years, First Republic was the envy of peers as its focus on rich Americans helped turbocharge growth and allowed it to poach talent. But that model broke down in the aftermath of the SVB failure as its wealthy customers quickly pulled uninsured deposits.

Lazard and JPMorgan Chase were hired last month to advise First Republic, according to media reports.

The key advantage of the advisors’ plan, they say, is that it allows First Republic to offload some, but not all of its underwater bonds. In a government receivership, the whole portfolio must get marked down at once, resulting in what Morgan Stanley analysts estimated to be a $27 billion hit.

One complication, however, is that the advisors are relying on the U.S. government to summon bank CEOs together to explore possible solutions.

There have been false starts already: One top four U.S. bank said that the government told it to be ready to act on the First Republic situation this past weekend, but nothing happened.

Big bank doubts

While the exact contour of any deal is a matter for negotiation and could include a special purpose vehicle or direct purchases, several possibilities address the bank’s ailing balance sheet. The bank is weighing the sale of $50 billion to $100 billion in debt, Bloomberg reported Tuesday.

First Republic loaded up on low-yielding assets including Treasurys, municipal bonds and mortgages, making what was essentially a bet that interest rates wouldn’t rise. When they did, the bank found itself with tens of billions of dollars in losses.

By drastically reducing the size of its balance sheet, the bank’s capital ratios will suddenly be far healthier, paving the way for it to raise more funds and continue as an independent company.

Other possible, but less likely moves include converting the big bank’s deposits into equity, or even finding a buyer. But a suitor hasn’t emerged in the past month, and isn’t likely given that any purchaser would also own the losses on First Republic’s balance sheet.

That has led sources close to the big banks to believe that the most likely scenario for First Republic is government receivership, which is how SVB and Signature were resolved.

Those close to the banks were hesitant to endorse a plan in which they would have to recognize losses for overpaying for bonds. They also expressed distrust of government-brokered deals after some of the pacts from the 2008 financial crisis ended up being costlier than expected.

Open vs closed

But the failures of SVB and Signature – the two biggest since the 2008 financial crisis – cost the FDIC Deposit Insurance Fund many billions of dollars, which is paid for by member banks. They also benefited the buyers who were able to cherry-pick the best assets while the FDIC retains underwater bonds, the First Republic advisors noted.

Advisors referred to the private market solutions as the “open bank” option, while government receivership is the “closed-banked” scenario.

But there is a third possibility: the bank grinds on as is, slowly losing yet more value amid probable quarterly losses, talent flight and unceasing doubts.

“Time, by the way, is not the bank’s friend,” analyst Don Bilson wrote Tuesday. “If anything, last night’s discouraging update will make it even harder for First Republic to keep what it has.”

Reports /TrainViral/

Crypto

Bitcoin’s Recovery – the Downturn Is Over

Published

5 months ago

July 16, 2024

The market is currently in a news-driven environment where the prices of cryptocurrencies have been determined by news agenda rather than fundamentals.

Bitfinex analysts have warned crypto investors to be cautious as bitcoin’s (BTC) recovery over the weekend is not a sign that its correction is over; the asset could witness more bloodshed in the near term.

In the latest Bitfinex Alpha report, experts deemed the market’s reaction this week critical, especially as supply alleviated over the weekend could return when traditional markets open.

“No Man’s Land”

Since Saturday, bitcoin has risen almost 10% from $57,600 to $63,000, closing last week in the green. The asset has surged above the 125-day range low of $60,200, which it broke through earlier this month after news of the German government’s massive BTC selling hit the market.

Market sentiment began to improve after reports that wallets linked to the German government were almost empty. However, the positive sentiment may not be sustained for long as the BTC the German authorities moved to trading desks and exchanges are yet to be sold.

While the supply from Germany appears to have been factored into bitcoin’s market price, Bitfinex analysts believe the end of selling pressure depends on how the involved trading desks execute their trades in the coming days.

Although the shift in sentiment underscores the market’s capacity to integrate new information and adjust expectations quickly, analysts think the market’s reaction over the first two trading days of the week cannot be overlooked for two reasons.

First, the low support level in the $60,200 range has now become a potential resistance line. Second, trading patterns over the past three months suggest that weekends are usually favorable for markets, especially on Saturdays when supply pressure seems to subside.

“We are now in no man’s land until we get clear resolution above or below this level,” the analysts said.

A News-Driven Environment

Besides the potential resistance level and three-month weekend trading pattern, the market is currently in a news-driven environment, where the prices of cryptocurrencies have been determined by news agendas rather than fundamentals.

Since selling pressure concerns are not yet completely obsolete due to upcoming Mt Gox creditor distributions, Bitfinex analysts expect such headlines to continue to have some impact on price movements. As such, the analysts urged investors to exercise caution in their trading strategies.

Reports /Trainviral/

Crypto

Bitcoin ETFs Saw $300M in Daily Net Inflows

Published

5 months ago

July 16, 2024

BlackRock’s IBIT led with $117.25 million in inflows on July 15, also being the most traded Bitcoin ETF.

The US spot Bitcoin ETFs recorded a daily net inflow of $301 million on July 15th. This extended their winning streak to seven consecutive days amidst a broader market recovery.

None of the ETFs recorded outflows for the day.

Bitcoin ETFs Rake in $16.11B in Net Inflows Since Jan

According to the data compiled by SoSoValue, BlackRock’s IBIT, the top spot Bitcoin ETF by net asset value, recorded the largest net inflows of the day at $117.25 million. IBIT was also the most actively traded Bitcoin ETF on Monday, with a volume of $1.24 billion. Ark Invest and 21Shares’ ARKB came in close behind with net inflows of $117.19 million.

Fidelity’s FBTC experienced net inflows of $36.15 million on Monday, while Bitwise’s BITB saw $15.24 million in inflows. VanEck’s HODL, Invesco and Galaxy Digital’s BTCO, and Franklin Templeton’s EZBC funds also recorded net inflows. Meanwhile, Grayscale’s GBTC and other ETFs, such as Valkyrie’s BRRR, WisdomTree’s BTCW, and Hashdex’s DEFI, registered no flows for the day.

A total of $2.26 billion was traded on Monday. The trading volume for these ETFs was less than in March when it exceeded $8 billion on some days. Meanwhile, these funds have collectively attracted $16.11 billion in net inflow since their January launch.

What’s Next For Bitcoin?

Earlier this month, bitcoin’s price decline was mainly due to fears of massive selling pressure from Mt. Gox and the German government’s BTC sales.

But the assassination attempt on pro-crypto former US President and presumptive Republican candidate Donald Trump at Saturday’s rally seemed to spark a recovery in the world’s largest digital asset, and experts are bullish on the asset’s price trajectory going forward. Bitcoin surged more than 9% over the past week and was currently trading slightly below $64,000.

Veteran trader Peter Brandt discussed bitcoin’s price outlook, suggesting a potential major rally. He referred to a pattern he terms “Hump->Slump->Bump->Dump->Pump” and highlighted that the July 5 double top attempt was a bear trap, confirmed by the July 13 close. He sees a likely continued upward trend but warned that a close below $56,000 would negate this bullish view.

“Bitcoin $BTC could be unfolding its often-repeated Hump…Slump…Bump…Dump…Pump chart construction. Jul 5 attempt at the double top was a bear trap, confirmed by Jul 13 close. Most likely scenario now is that bears are trapped. Close below $56k negates this interpretation”

Reports /Trainviral/

Crypto

LI.FI DeFi Platform Exploited, Over $8M Lost

Published

5 months ago

July 16, 2024

PeckShield alert reveals LI.FI’s protocol vulnerability is similar to a March 2022 attack, with the same bug recurring.

The decentralized finance (DeFi) platform LI.FI protocol has suffered an exploit amounting to over $8 million.

Cyvers Alerts reported detecting suspicious transactions within the LI.FI cross-chain transaction aggregator.

LI.FI Issues Warning After $8 Million Exploit

LI.FI confirmed the breach in a statement on July 16 via X: “Please do not interact with any http://LI.FI powered applications for now! We’re investigating a potential exploit.” The team clarified that users who did not set infinite approval are not at risk, emphasizing that only those who manually set infinite approvals seem to be affected.

According to Cyvers Alerts, more than $8 million in user funds have been stolen, with the majority being stablecoins. According to on-chain data, the hacker’s wallet holds 1,715 Ether (ETH) valued at $5.8 million and USDC, USDT, and DAI stablecoins.

Cyvers Alerts advised users to revoke relevant authorizations immediately, noting that the attacker is actively converting USDC and USDT into ETH.

Crypto security firm Decurity provided insights into the exploit, stating that it involves the LI.FI bridge. “The root cause is a possibility of an arbitrary call with user-controlled data via depositToGasZipERC20() in GasZipFacet, which was deployed 5 days ago,” Decurity explained on X.

“In general, the risks behind routers, cross-chain swaps, etc. are about token approvals. Raw native assets like (unwrapped) ETH are safe from these kinds of hacks b/c they don’t have approvals as an option. Most users & wallets also no longer do “infinite approvals” which gives a smart contract total control on removing any amount of their tokens. It’s important to understand which tokens you’re approving to which contracts.

This dashboard looks for all transactions of a user that intersects Lifi. Not all of these transactions indicate risk- but you can see how, broadly, integrations & layers of tech (like how Metamask bridge uses Lifi on BSC) can complicate how users do or don’t put their assets at risk. Revoke Cash is the most well known approval manager app.

But it’s also good security practice to simply rotate your address. New addresses start with 0 approvals, so starting fresh by moving your tokens to a fresh address is another good security practice.” – commented Carlos Mercado, Data Scientist at Flipside Crypto.

Recent Exploit Mirrors March 2022 Attack

Further analysis by PeckShield alert revealed that the vulnerability is similar to a previous attack on LI.FI’s protocol that occurred on March 20, 2022. That incident saw a bad actor exploit LI.FI’s smart contract, specifically the swapping feature, before bridging.

The attacker manipulated the system to call token contracts directly within their contract’s context, making users who had given infinite approval vulnerable. This exploit resulted in the theft of approximately 205 ETH from 29 wallets, affecting tokens such as USDC, MATIC, RPL, GNO, USDT, MVI, AUDIO, AAVE, JRT, and DAI.

“The bug is basically the same. Are we learning anything from the past lesson(s)?” PeckShield Alert said in a July 16 X post.

Following the 2022 incident, LI.FI disabled all swap methods in its smart contract and worked on developing a fix to prevent future vulnerabilities. However, the recurrence of a similar exploit raises concerns about the platform’s security measures and whether adequate steps were taken to address the vulnerabilities identified in the previous breach.

LI.FI is a liquidity aggregation protocol that allows users to trade across various blockchains, venues, and bridges.

Reports /Trainviral/