The regional American bank First Republic has been in the news this week as the future of its business becomes more uncertain. However, this is not a new event as the bank had been struggling for some time and had been impacted by the events surrounding the collapse of Silicon Valley Bank in March. This does not represent the broader sector as this isolated incident has been in train throughout the year. We do not see this as systemic risk to the broader global financial sector. First Republic is outside the top ten largest banks in the US.
Coutts has minimal exposure to First Republic
Our exposure to the US banking sector is centred on large institutions, with only a small fraction allocated to US regional banks. The challenges First Republic is facing have not had any direct impact on our portfolio performance, or the funds in which we are invested. Notably, the banks we are exposed to have attracted more deposits as they are perceived as safer and higher quality.
How is Coutts positioned?
Our portfolios are cautiously positioned should this issue affect confidence in other US regional banks. More broadly, we are already underweight financial companies in our equity exposure. Our defensive positioning also helps in this environment. We are currently underweight equity and overweight cash and defensive assets such as healthcare.
Our investment team continues to monitor the situation for any secondary effects, though we believe these issues are likely to remain contained and not have any impact beyond US regional banks. First Republic’s difficulties have not directly affected our investment performance. These issues could have indirect consequences on the economic outlook as lending from US regional banks could be negatively impacted. If that were to be the case, we have ample budget to position ourselves accordingly.
The value of investments can fall as well as rise and you may not get back what you put in. Past performance should not be seen as an indication of future performance. You should continue to hold cash for your short-term needs.