The Last Days Of First Republic

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You’re thinking of this place all wrong, as if I had the money back in a safe. Your money’s in Web3 innovations, it’s in startups empowering women” —Delicious Tacos,riffing on the bank run scene in “It’s a Wonderful Life”.

The “Bank Walk” Turns Into Another Bank Run

Jim Bianco coined the phrase “bank walk” to refer to the slow and steady deposit flight from banks to money market funds, one he predicted would squeeze banks’ earnings but not lead to another bank failure.

It looks like Bianco’s “bank walk” has turned into another bank run, at least in the case of First Republic Bank (FRC).

The Last Days Of First Republic

After the close on Friday, ZeroHedge noted Reuters’ report that First Republic is likely to be headed into FDIC receivership. 

Readers may recall that we opened two put spreads on First Republic prior to its Q1 earnings.

We exited those spreads today for gains of 80% and 92%, respectively.

Betting Against First Republic For The Third Time

In addition to those two put spreads, we placed a third bet against First Republic that’s still open now. On Thursday, when the stock was trading with a $6 handle, we bought the $3 strike, July 21st expiration puts on it for $1.36. As I wrote on my trading Substack at the time: 

This is basically a bet on the bank going out of business or being acquired for peanuts in the near future. I looked at using a put spread here, but the risk/reward looked better with straight puts in this case.

My reasoning there was pretty simple: once the share price of a bank like First Republic, which was trading in the triple digits earlier this year, hits the single digits, it’s over. Confidence is gone, and remaining depositors will start heading for the exits. 

As FRC circles the drain, we may soon be able to exit our puts for close to their strike price for a nice gain. 

A Week Of Wins (And One Loss)

Overall, it was a profitable week for us, as we made money betting on one stock that went up (calls on Taylor Morrison Home Corporation (TMHC), which we exited for a 126% gain), and two that crashed (in addition to First Republic, we exited a put spread on Snap, Inc (SNAP) for a gain of 123%). You can read about those trades, plus the one we got wrong, here

And if you want a heads up next time we place one of these trades, as always, feel free to sign up for our Substack/occasional email list below.