The largest banks in the United States are discussing a joint rescue of First Republic Bank FRC 11.55%
with more than $25 billion to support the beleaguered lender, people familiar with the matter said.
c. B. Morgan Chase and Co., Citigroup a company.,
American bank corp.
and Wells Fargo & Co. are in talks to put $5 billion of each other’s money into the First Republic, the people said. Morgan Stanley and Goldman Sachs Group a company.,
So are US regional banks BancorpAnd
PNC Financial Services Group a company.,
and Trust Financial corp.
People said that all kicks in smaller amounts.
Details are still being worked out, the people said, and the banks have discussed the plan with officials and regulators in Washington, DC. Deal could be revealed early today.
Major banks have received an influx of billions in deposits from medium-sized lenders including First Republic over the past week in the wake of the Silicon Valley bank collapse. The deal could be structured in such a way that the banks would actually return some of the money they collected from the First Republic’s panicked depositors, some people said.
A bailout deal could solve First Republic’s immediate problems of falling stock prices and flight of depositors. But the bank will still have to contend with a tougher business environment in a world where interest rates are rising, and depositors suddenly realize the risks of large uninsured balances.
The rescue would be an extraordinary effort to protect the entire banking system from spreading panic by turning the First Republic into a firewall. Two banks have already failed in the past week after depositors withdrew billions, and fears have grown that First Republic could be next.
First Republic stock has been bullish for several days, and fell sharply Thursday morning on concerns about the bank’s health in the wake of the collapse of Silicon Valley Bank. The stock reversed its losses on Thursday and recently rose about 5% in the afternoon after The Wall Street Journal reported on the plan.
The collapse of the Silicon Valley bank last week raised concerns about other regional banks with large pools of uninsured deposits. First Republic also catered to similar clients in the Bay Area as the failed bank.
Customers pulled out billions in deposits from First Republic and the bank over the weekend sought to stem the tide with a deal, announced Sunday, that includes additional funding from the Federal Reserve and JPMorgan that gave the bank a total of $70 billion in available liquidity.
People familiar with the matter said the bank has maintained its stability and deposit losses are not large.
But on Wednesday, credit ratings agency Standard & Poor’s downgraded the bank’s bond rating to junk status and investors continued to sell, adding to the uncertainty.
The bank’s stock is down about 60% this week. Its market capitalization has fallen from $21 billion on March 8, when the SVB crisis began, to about $5 billion.
The fast-moving situation is reminiscent of the drama in the banking system in the 2008 financial crisis, when JPMorgan and its CEO, Jamie Dimon, played the white knight, buying Bear Stearns and then Washington Mutual. Litigation, losses and political pressure followed. Mr. Dimon said he would never do a government-led bailout again.
First Republic’s stock market valuation has long been the envy of the banking industry. Its clients are wealthy individuals and companies, especially on the coasts. Its lending business revolves around providing massive mortgage loans to clients like Mark Zuckerberg. Few of these loans ever went bad. The bank had about $213 billion in assets as of the end of 2022.
The bank’s profits rose in 2022, but large interest rate increases imposed by the Federal Reserve had a negative impact. Wealthy First Republic customers were no longer content to leave huge sums of money in bank accounts that did not earn any interest.
— Lauren Cooper, Lauren Thomas, and Rebecca Ballhaus contributed to this article.
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