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NEW YORK: Large US banks injected US$30 billion (RM135 billion) in deposits into First Republic Bank on Thursday (March 16), swooping in to rescue the lender caught up in a widening crisis triggered by the collapse of two other mid-size US lenders over the past week.
Banking stocks globally have been battered since Silicon Valley Bank (SVB) collapsed last week due to bond-related losses that piled up when interest rates surged last year, raising questions about what else might be lurking in the wider banking system.
Within days, the market turmoil had ensnared Swiss lender Credit Suisse, forcing it to borrow up to US$54 billion from Switzerland's central bank to shore up liquidity.
By Thursday afternoon, the spotlight whipsawed back to the United States as big banks led an effort to prop up support for First Republic, a regional lender whose shares had tumbled 70% in the last nine trading sessions.
Some of the biggest US banking names including JPMorgan Chase & Co, Citigroup Inc, Bank of America Corp, Wells Fargo & Co, Goldman Sachs and Morgan Stanley were involved in the rescue, according to a statement from the banks.
Bank of America, Citigroup, JPMorgan Chase and Wells Fargo each are making a US$5 billion uninsured deposit in First Republic, while Goldman and Morgan Stanley will put in US$2.5 billion each.
A group of five other lenders, including PNC Bank and US Bank, are each allotting US$1 billion.
“This action by America’s largest banks reflects their confidence in First Republic and in banks of all sizes,” the group said in a joint statement.
“Together, we are deploying our financial strength and liquidity into the larger system, where it is needed the most,“ the banks said.
In a statement, First Republic founder Jim Herbert and CEO Mike Roffler said the “collective support strengthens our liquidity position ... and is a vote of confidence for First Republic and the entire US banking system.”
The deal was put together by power brokers including US Treasury Secretary Janet Yellen, Federal Reserve chairman Jerome Powell and JPMorgan Chase CEO Jamie Dimon, who discussed the package on Tuesday, according to a source familiar with the situation.
US regulators said the show of support was most welcome, and showed the resilience of the banking system.
A round of financing on Sunday raised through JPMorgan had given First Republic access to US$70 billion in funds. But that failed to calm investors as worries of a contagion deepened with the demise of Signature Bank to follow that of SVB and depositors began moving cash to larger lenders.
First Republic Bank's stock closed up 10% on news of the rescue but its shares fell 18% in after-market trading, after the bank said it would suspend its dividend.
The bank’s stock price is down more than 70% since March 6.
News of the rescue also helped boost Wall Street indices, with JP Morgan, Morgan Stanley and Bank of America all up more than 1%, while the benchmark S&P 500 Banks Index recovered 2.2%.
Smaller banks also rebounded from the recent sell-off, with Fifth Third Bancorp, PNC Financial Services Group and KeyCorp each gaining more than 4%.
Policymakers have tried emphasise that the current turmoil is different than the global financial crisis 15 years ago as banks are better capitalised and funds more easily available.
But central bank data on Thursday also showed that banks sought record amounts of emergency liquidity from the Federal Reserve in recent days, driving up the size of the Fed's balance sheet after months of contraction.
“The numbers, as we see them right here, are more consistent with the idea that this is just an idiosyncratic issue at a handful of banks,” said Thomas Simons, money market economist with investment bank Jefferies.
Yellen said the US banking system remains sound thanks to “decisive and forceful” actions following the collapse of SVB.
Allianz, one of Europe’s biggest financial firms, said authorities were “well equipped” to deal with any liquidity crisis, “unlike what happened during” the 2007-2008 financial crisis.
Founded in 1985, First Republic is the 14th largest US bank by assets, with US$212 billion at the end of 2022.
The lender headquartered in San Francisco is also present on the East Coast including in New York and Florida, as well as in western states such as Washington.
But the majority of the bank’s “affluent” client base is concentrated in coastal urban areas, Morningstar analyst Eric Compton wrote in a recent note to clients.
The bank is known for private banking and wealth management. As a result of its clientele, it has a large percentage of uninsured deposits that has kept it under scrutiny after the failures of SVB and Signature. – Reuters, AFP
