PHOTO: Brian Banducci for THE WALL STREET JOURNAL
Eleven banks have invested $30 billion in First Republic Bank, according to a joint statement by the heads of the Treasury, the Federal Reserve, the Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency.
“This show of support from a group of large banks is welcome and demonstrates the resilience of the banking system,” federal officials said.
The largest U.S. banks discussed a joint bailout totaling more than $25 billion earlier Thursday to prop up the troubled lender, sources told the WSJ.
JPMorgan Chase & Co., Citigroup Inc., Bank of America Corp. and Wells Fargo & Co. were negotiating to contribute $5 billion of their own money to the First Republic. Morgan Stanley and Goldman Sachs Group Inc., as well as regional banks US Bancorp, PNC Financial Services Group Inc. and Truist Financial Corp. should have also contributed, but on a smaller scale.
Large banks received a billion-dollar inflow of funds on deposits that clients of regional banks, including First Republic, withdrew from their accounts following the failure of Silicon Valley Bank. Therefore, the big banks will actually return some of the money they received from the panicked depositors of the smaller banks. First Republic Bank – including.
The bailout might solve the bank’s pressing problems of falling stock prices and fleeing depositors. But it will still have to contend with a tougher world of higher interest rates and savers suddenly aware of the pitfalls of large uninsured balances.
The rescue will be an emergency attempt to protect the entire banking system from widespread panic by turning First Republic Bank into a firewall. Two banks already went bankrupt last week following depositors withdrew billions, raising fears that First Republic might be next.
The collapse of Silicon Valley Bank last week raised concerns regarding other regional banks with large volumes of uninsured deposits. First Republic also catered to the same clientele as the bankrupt SVB.
Clients pulled billions of deposits out of First Republic, and over the weekend the bank tried to stem the tide with a deal announced on Sunday seeking additional funding from the Federal Reserve and JPMorgan, giving the bank a total of $70 billion of available liquidity.
The bank says it is stable and that deposit losses are not excessive, according to WSJ sources.
But S&P Global Ratings downgraded the bank’s bonds to junk on Wednesday, and investors continued selling, adding to the uncertainty.
The bank’s shares are down regarding 60% this week. Its market capitalization has fallen from $21 billion on March 8, when the SVB crisis began, to regarding $5 billion.
The rapidly changing landscape is reminiscent of the drama in the banking system during the financial crisis of 2008, when JPMorgan and its chief executive Jamie Dimon played the white knight by buying Bear Stearns and then Washington Mutual. Lawsuits, losses and political pressure followed. Mr. Dimon said he would never do a government-led rescue deal once more.
The business of First Republic Bank and its valuation by the stock market has long been the envy of the banking industry. His clients are wealthy people and businesses, mostly on the coasts. His lending business revolves around issuing huge mortgages to clients like Mark Zuckerberg. Few of these loans have ever proved bad. As of the end of 2022, the bank’s assets were regarding $213 billion.
The bank’s profits rose in 2022, but the Fed’s aggressive rate hikes have hurt. Wealthy clients no longer wanted to leave huge sums in bank accounts that did not pay interest.
According to WSJ
MarketSnapshot – ProFinance.Ru news and market events in Telegram
On this topic:
Roubini warns that Credit Suisse’s failure will be worse than Lehman Brothers’ failure
Credit Suisse soared 40%, fueling a rally in banking stocks
Swiss central bank to provide Credit Suisse with liquidity if needed
Shares of Credit Suisse fell 18% – the main shareholder washes his hands
