First Republic Bank Offered $30 Bln Lifeline in 'Show of Support' by Group of America’s Moneylenders
11:15 GMT 17.03.2023 (Updated: 12:08 GMT 17.03.2023)
One of the top 20 US commercial banks, Silicon Valley Bank, specializing in banking for tech startups since 1983, collapsed on March 10, resulting in a federal government intervention, with fears spiraling of a likely domino effect hitting other volatile moneylenders.
Teetering First Republic Bank has been thrown a lifeline worth $30 billion by a group of America's largest banks in a "show of support," news of which sent shares in the medium-size private lender surging more than 20 percent on Thursday. While stock of America's 14th largest bank had been down more than 30 percent earlier on March 16, they closed up nearly 10 percent once news of the cash infusion to prop it up broke.
JPMorgan Chase, Bank of America, Wells Fargo, Citigroup and Truist, among others, are pooling their efforts to channel their deposits into the struggling San Francisco lender amid investor fears of a contagion effect after a series of bank collapses in the US.
Thus, JPMorgan, Bank of America Corp, Citigroup, and Wells Fargo have reportedly made uninsured deposits of $5 billion each into First Republic. Goldman Sachs Group Inc. and Morgan Stanley ostensibly provided $2.5 billion each, while lenders including BNY Mellon and Truist Financial Corp pumped $1 billion into First Republic.
Earlier in the week, First Republic's share price plunged nearly 70 percent, leaving investors jittery that the lender might be next in line to face a bank run. Furthermore, its ratings were downgraded by Fitch and S&P on Wednesday, with the agency placing them on CreditWatch negative. About 70 percent of the deposits of First Republic, founded in 1985, are uninsured, which is the third highest after Silicon Valley Bank (SVB) and Signature Bank, according to a Bank of America note cited by media. In the case of SVB, 94 percent of domestic deposits were uninsured, while 90 percent of Signature Bank's deposits were uninsured, according to S&P Global data. In the case of large US banks, about 47 percent of deposits are typically insured, it added.
In a statement, the group of banks said their decision to prop up the struggling moneylender “reflects their confidence in First Republic and in banks of all sizes,” adding that “regional, midsize and small banks are critical to the health and functioning of our financial system.”
“The banking system has strong credit, plenty of liquidity, strong capital and strong profitability,” the joint statement added.
In response, US financial officials were cited as hailing this "show of support" by the large banks, saying it "demonstrates the resilience of the banking system."
16 March 2023, 18:24 GMT
Reports of a mulled rescue deal for First Republic bank surfaced earlier in the week, as a coordination call was allegedly held on Tuesday between US Treasury Secretary Yellen and Jerome Powell, the chairman of the Federal Reserve. Afterwards, Jamie Dimon, the chief executive of JPMorgan Chase, ostensibly discussed the idea in a call with Yellen.
On March 16, Yellen, who was set to testify before the Senate Finance Committee, was described as sealing the deal in a call with ban regulators and CEOs.
© AFP 2023 / NOAH BERGERIn this file photo taken on March 10, 2023, a customer (L) reads a notice about Silicon Valley Bank’s closure at the bank’s headquarters in Santa Clara, California
In this file photo taken on March 10, 2023, a customer (L) reads a notice about Silicon Valley Bank’s closure at the bank’s headquarters in Santa Clara, California
© AFP 2023 / NOAH BERGER
On March 10, Silicon Valley Bank (SVB), the US' 16th-largest, specializing in supporting tech businesses, failed and was taken into government control. The bank's swift collapse rattled other banks, with shares of First Republic sinking 50 percent the same day. This was followed two days later by the failure of New York's Signature Bank, known for courting the cryptocurrency industry. It was closed by regulators on March 12 over alleged systemic risks.
15 March 2023, 08:20 GMT