The biggest US banks have joined forces to deposit $30bn into First Republic Bank in an effort to shore up its finances and contain the fallout from the collapse of two big lenders last week.
JPMorgan Chase, Bank of America, Citigroup and Wells Fargo will each deposit $5bn into First Republic, the California-based lender. Goldman Sachs and Morgan Stanley will put up $2.5bn each, while BNY Mellon, PNC Bank, State Street, Truist and US Bank put up $1bn each.
“The actions of America’s largest banks reflect confidence in the country’s banking system. Together, we are applying financial strength and liquidity to the larger system, which is most needed,” the banks said in a statement on Thursday.
But there are still some questions as to whether the move will improve investor confidence in the First Republic, as well as the health of the banking sector in general. First Republic shares, after rebounding on Thursday, were down nearly 14 percent in after-hours trading. The drop comes after the bank announced it was suspending its dividend “for an indefinite period of time”. The bank also said it would reduce lending, as well as the overall size and composition of operations.
JPMorgan, First Republic’s adviser, has pitched rival lenders on assembling an industry-backed solution for First Republic. Lenders made calls Wednesday night to several Wall Street banks seeking financing, two people familiar with the matter said.
The banks are under pressure from the government to help First Republic, after its stock tumbled and its debt rating was downgraded following the failure of Silicon Valley Bank, people involved in the talks said.
In a statement, US Treasury secretary Janet Yellen, Federal Reserve chairman Jay Powell and senior regulators said: “This show of support from a large group of banks is most welcome, and shows the resilience of the banking system.”
The Fed also added that it is “as always . . . ready to provide liquidity through the discount window to all eligible institutions”.
First Republic shares rose more than 10 percent after the announcement. The stock has fallen 64 percent in the past week since the Federal Deposit Insurance Corporation took over SVB, fueling fears that the contagion will spread to other regional lenders.
To strengthen the bank’s financial position, it took funding from the Fed and JPMorgan on Friday, which provided $70bn of unused liquidity, excluding funds available from the new Federal Bank Term Funding Program.
Silicon Valley Bank collapsed
Explore the latest news and analysis on the fallout from the failure of Silicon Valley Bank, the startup lender that became the second largest bank collapse in US history
First Republic has struggled to restore confidence among investors after the collapse of SVB on Friday, followed by Signature Bank on Friday.
On Tuesday, Moody’s placed all long-term ratings for First Republic on watch for downgrade, saying they reflected the bank’s reliance on uninsured deposits and unrealized losses on held-to-maturity securities. Fitch and S&P Global downgraded First Republic’s credit rating on Wednesday.
The first Republican difficulties came despite assurances from president Joe Biden that regulators would do “whatever it takes” to protect depositors and emergency funding measures from the US government to boost liquidity.