The largest US banks have banded together to deposit $30 billion into First Republic in an attempt to bolster its finances and contain the fallout from the collapse of two major lenders in the past week.
JPMorgan Chase, Bank of America, Citigroup and Wells Fargo will each deposit $5 billion into First Republic, a California-based lender. Goldman Sachs and Morgan Stanley will put in $2.5 billion apiece while BNY Mellon, PNC Bank, State Street, Truist and US Bank are depositing $1 billion each.
“The actions of America’s largest banks reflect their confidence in the country’s banking system. Together, we are deploying our financial strength and liquidity into the larger system, where it is needed the most,” the banks said in a joint statement on Thursday.
JPMorgan, an adviser to First Republic, had been sounding out rival lenders about assembling an industry-backed solution for First Republic Bank. The lender made calls on Wednesday night to several Wall Street banks to find funding for First Republic, according to two people familiar with the matter.
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The banks had come under pressure from the government to help First Republic, after its shares plunged and its debt rating was downgraded in the wake of the failure of Silicon Valley Bank (SVB), according to a person involved in the talks.
In a joint statement, US treasury secretary Janet Yellen, Federal Reserve chair Jay Powell and senior regulators said: “This show of support by a group of large banks is most welcome, and demonstrates the resilience of the banking system”.
The Fed also added that “as always...it stands ready to provide liquidity through the discount window to all eligible institutions”.
First Republic shares, which have fallen 66 per cent in the past week, were up by more than 12 per cent following the announcement. To strengthen its financial position the bank took funding from the Federal Reserve and JPMorgan on Sunday, which gave it $70 billion of unused liquidity, excluding funds available from the new federal Bank Term Funding Program.
First Republic has struggled to restore confidence among investors after the collapse of SVB on Friday, followed by Signature Bank on Sunday. Its share price is down more than 70 per cent since the Federal Deposit Insurance Corporation stepped in to take over SVB, sparking fears that contagion would spread to other regional lenders. – Copyright The Financial Times Limited 2023
