Wall Street giants inject $40.3 billion to rescue First Republic Bank

Headquartered in San Francisco, First Republic is also present on the East Coast including in New York and Florida, as well as in western US states such as Washington and Wyoming. PHOTO: AFP

NEW YORK - America’s largest banks moved on Thursday to shore up First Republic Bank, easing fears that the regional US lender could be the next domino to fall after collapses including Silicon Valley Bank (SVB).

A consortium of 11 US private banks, including Bank of America, Citigroup and JPMorgan Chase, announced they would deposit US$30 billion (S$40.3 billion) into First Republic.

The move marks a dramatic initiative by the lenders to bolster the system following failures of three mid-sized lenders in the last week.

“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.

Shares of First Republic pared earlier losses to trade higher on Wall Street on Thursday following reports it could receive an infusion of funds from some of the country’s most prominent financial institutions.

“This show of support by a group of large banks is most welcome, and demonstrates the resilience of the banking system,” said leaders of the Treasury Department, United States Federal Reserve, Federal Deposit Insurance Corporation and Office of the Comptroller of the Currency in a joint statement.

Bank of America, Citigroup, JPMorgan Chase and Wells Fargo are each 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.

In a statement, First Republic founder Jim Herbert and chief executive 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 action comes on the heels of emergency measures taken on Sunday night by the US Federal Reserve and other US regulators to assure all depositors of two failed banks, SVB and Signature Bank.

Last Friday’s failure of SVB has sparked concerns about a contagion effect, with especially keen worries that more banks could suffer a run by depositors.

The crisis has also spread to Europe, with the Swiss central bank intervening to support Credit Suisse after it came under pressure.

Founded in 1985, First Republic is the 14th largest US bank by assets, with US$212 billion at the end of 2022.

Headquartered in San Francisco, the lender is also present on the East Coast including in New York and Florida, as well as in western states such as Washington and Wyoming.

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.

Last week also saw the closure of crypto banking titan Silvergate, in the face of market turmoil and regulatory pressure.

Although First Republic’s customers come from a wide range of sectors, there have been concerns that many of them might look to flee to the relative safety of big, well-capitalised Wall Street banks in the light of the ongoing turbulence in financial markets.

According to S&P Global Ratings, 68 per cent of the bank’s accounts hold deposits of more than US$250,000, the level automatically guaranteed by US regulators.

“We believe the risk of deposit outflows is elevated at First Republic Bank,” S&P said on Wednesday as it moved to downgrade the lender.

This is despite the actions of federal banking regulators and the bank actively increasing its borrowing availability, to mitigate risk associated with the past week’s bank failures, S&P said.

By Thursday morning, First Republic’s share price had cratered by more than 75 per cent week on week, adding to worries about its long-term viability.

Wall Street stocks finished solidly higher following the 11 banks’ announcement. AFP

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