Wall Street giants to the rescue of First Republic
Eleven major US banks chose Thursday to come together to the rescue of the ailing First Republic and thus prevent it from becoming the next domino to fall after three bankruptcies in a row.
They have pledged a total of US$30 billion in deposits to First Republic. This is a sign, according to them, of their confidence in the country's banking system, indicates a joint press release.
This action was welcomed by the American authorities, the ministry of the Economy, the US Federal Reserve and two financial regulators who believe in a separate press release that it demonstrates the resilience of the banking system.
These entities have been struggling since the weekend to reassure markets and individuals about the situation of the banks.
The Fed said on Thursday that it had lent them nearly 12 billion US dollars since Sunday, through a new specific program, intended to allow them to honor withdrawal requests from their customers. The usual very short-term loans jumped, over one week, from barely 5 billion to 152 billion.
And the Fed lent 142.8 billion US dollars to the two entities created by the regulators to succeed SVB and Signature Bank − New York sign closed Sunday by the American regulator.
First Republic, the 14th largest U.S. bank by asset size, struggled after the close proximity failures of Silicon Valley Bank [SVB], Signature Bank and Silvergate, as it primarily serves high net worth customers.
The bankruptcy at Silicon Valley Bank is the result of a wind of panic among depositors, who withdrew billions of dollars due to fears surrounding the bank's finances.
Investors and analysts feared that many customers would prefer to move their money to establishments that presented no a priori risk of bankruptcy, because they were too big for regulators to let them close, and that First Republic in turn would have to be liquidated.
A grim prospect for confidence in the banking system as a whole, which prompted the major banks to act in concert.
The banking system has strong credit, ample liquidity, large capital and high profitability. Recent events have not changed this situation, they say in their joint statement.
The day had started badly on Thursday for First Republic: after having already lost 73% within a week, the stock fell as much as 36% after a Bloomberg report said the bank was exploring strategic options for its future, including a possible sale. However, the stock rallied as the day progressed and ended up 12%.
Bank of America, Citigroup, JPMorgan Chase and Wells Fargo, the nation's four largest banks by asset size, are expected to contribute US$5 billion each.
Merchant banks Goldman Sachs and Morgan Stanley are to pay $2.5 billion each, while BNY Mellon, PNC Bank, State Street, Truist and U.S. Bank are to pay $1 billion.
The bank's leaders, in their own press release, thanked their counterparts. Their collective support strengthens our liquidity position, reflects the quality of our business, and is a vote of confidence for First Republic and the entire U.S. banking system, write Jim Herbert, Founder and Chairman of the Board of Directors of facility, and Mike Roffler, General Manager.
The total amount of daily withdrawals has slowed significantly, executives say. The bank will now focus on reducing borrowing and evaluating the composition and size of its balance sheet, they add.
Founded in 1985 and based in San Francisco, First Republic provides personal and corporate private banking and wealth management services, primarily in California and the East Coast. It has grown rapidly in recent years, growing from $22 billion in assets at the end of 2010 to $212 billion at the end of 2022.
Already closely watched since a few days, the bank had indicated on Sunday that it had strengthened and diversified its liquidity and had 70 billion dollars thanks to facilities offered by the American central bank, and to JPMorgan Chase.
This is insufficient in the eyes of the rating agencies S&P Global Ratings and Fitch, which on Wednesday lowered the rating they give to the company's debt in the category of speculative investments.
