Banking Issues Hiding Bigger Problem: Tavi Costa
First Republic Bank will receive $30 billion from some of the top U.S. banks in a bid to stabilize the troubled firm. It’s the third bank to be rescued in less than a week.
First Republic, like Silicon Valley Bank and Signature Bank, reportedly had a large number of uninsured deposits, triggering fears that customers would withdraw their money en masse.
Tavi Costa, portfolio manager at Crescat Capital, commented on the news. He said the banks’ issue was caused by most of the held-to-maturity assets being depreciated in value significantly, and having to be written down. But he sees a wider problem: “Imagine if that happens with private equity businesses across most of those technology startups that are likely to be written down significantly lower. And what would that do to those businesses in general? ”
He says if investors want to get their money out of that part of the economy, those outflows create even further problems.
He also sees the corporate bond market as fragile, and mega cap stocks to be one of the riskiest parts of the market.