Giverny Capital Asset Management, LLC, an investment management company, recently published its first-quarter 2023 investor letter. A copy of the same can be downloaded here. The model portfolio of the firm appreciated 6.06%, net of fees in the first quarter compared to a 7.50% return for the Standard & Poor’s 500 Index. For the year ended March 31, 2023, the portfolio returned -10.62% compared to -7.73% for the benchmark, net of fees. In addition, please check the fund’s top five holdings to know its best picks in 2023.
Giverny Capital highlighted stocks like First Republic Bank (NYSE:FRC) in the first quarter 2023 investor letter. Headquartered in San Francisco, California, First Republic Bank (NYSE:FRC) is a financial company that operates through Commercial Banking and Wealth Management segments. On April 26, 2023, First Republic Bank (NYSE:FRC) stock closed at $5.69 per share. One-month return of First Republic Bank (NYSE:FRC) was 58.44%, and its shares lost 96.30% of their value over the last 52 weeks. First Republic Bank (NYSE:FRC) has a market capitalization of $1.06 billion.
Giverny Capital made the following comment about First Republic Bank (NYSE:FRC) in its Q1 2023 investor letter:
“Our holding Charles Schwab, which has a bank inside its operations, lost 37% of its value as investors feared it, too, would lose deposits (and earnings power). As Schwab began the year as a 7.0% weight in the portfolio, this hurt as much as the wipeout at First Republic Bank (NYSE:FRC) The declines in First Republic and Schwab together cost us a full five percentage points of our capital. Other financial holdings M&T Bank, Credit Acceptance and JP Morgan also lost value during the quarter.
At First Republic, I long admired the bank’s proposition of offering attentive service to affluent clients. The bank’s advertising relied heavily on testimonials from notable entrepreneurs, entertainers and professionals, and these folks’ imprimatur helped First Republic grow deposits faster than any other large bank in America over many years. Because the bank’s customers were wealthy, it was able to make extremely low-risk loans to them. Over its 37-year history under founder and current chairman Jim Herbert, the bank suffered minuscule credit losses.
But with the clarity of hindsight, I self-report three analytical mistakes. First, it was clear that the bank issued too many long duration loans at very low interest rates during the pandemic. These low-yielding loans did not pose a repayment risk, but as interest rates rose, they created the obvious prospect of weaker earnings for a few years, and the less obvious prospect of structural fragility. When interest rates rise rapidly, the value of low-yielding loans declines, regardless of the creditworthiness of the borrowers. If the bank ever had to sell mortgages yielding 2% or 2.5% into the secondary market, when the current market yield is 5% or 6%, it would lose a lot of money. This was a theoretical issue until it wasn’t…” (Click here to read the full text)
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First Republic Bank (NYSE:FRC) is not on our list of 30 Most Popular Stocks Among Hedge Funds. As per our database, 40 hedge fund portfolios held First Republic Bank (NYSE:FRC) at the end of the fourth quarter which was 39 in the previous quarter.
We discussed First Republic Bank (NYSE:FRC) in another article and shared Ensemble Capital’s views on the company. In addition, please check out our hedge fund investor letters Q1 2023 page for more investor letters from hedge funds and other leading investors.
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Disclosure: None. This article is originally published at Insider Monkey.
