But on Friday, First Republic shares fell again, falling more than 30% and leaving analysts questioning whether it has a future as a standalone bank.
What happened to First Republic Bank?
First Republic was one of the banks caught in the contagion following the March 10 collapse of Silicon Valley Bank due to some similarities, including its size, its largely affluent customer base, and the largely uninsured nature of its deposit base.
Why does First Republic Bank require deposits?
Like many U.S. regional banks, First Republic faced concerns over the past week that its depositors could leave the company, reflecting concerns about its perceived similarity to Silicon Valley Bank.
Silicon Valley Bank failed because its core business, banking venture capital firms and their startups, wasted money and created ongoing liquidity needs. But the company had been heavily invested in long-dated bonds, the value of which had been badly hit by the Federal Reserve’s rate hikes over the past year, meaning it could only sell them at a loss.
When Silicon Valley Bank tried to raise cash nonetheless, its depositors fled, mostly business customers whose accounts far exceeded the Federal Deposit Insurance Corp.’s protection limit. of $250,000 to other banks. Uninsured depositors across the system took notice, and First Republic, which had about two-thirds of its deposits in uninsured accounts, came under scrutiny.
How does the First Republic Bank bailout work?
JPMorgan, Citigroup Inc., Bank of America Corp. and Wells Fargo & Co. each make a $5 billion uninsured deposit with First Republic. Morgan Stanley and Goldman Sachs Group Inc. each bring in $2.5 billion, while five other banks each contribute $1 billion. The move aims in part to restore confidence in regional banks by showing that the biggest companies are willing to put their money there.
The situation is reminiscent of the drama in the banking system during the 2008 financial crisis when JPMorgan bought Bear Stearns and then Washington Mutual.
“This show of support from a group of large banks is most welcome and demonstrates the resilience of the banking system,” said a group of US regulators led by Treasury Secretary Janet Yellen.
How was the First Republic Bank rescue plan decided?
Banking executives have come together in recent days to formulate the plan and discussed it with Ms Yellen and other officials and regulators in Washington, the Journal reported.
Big banks received an influx of billions in deposits from mid-tier lenders, including First Republic, last week following the collapse of Silicon Valley Bank and Signature Bank. JPMorgan and the others are now effectively giving back some of the money they raised.
Are First Republic Bank’s Troubles Over?
It doesn’t seem so. Stocks rallied on Thursday afternoon, but the magnitude of the rally moderated somewhat over the course of the afternoon, suggesting there may be some doubt that this will have the desired effect on overall investor sentiment. On Friday, the bank announced that it was suspending its dividend; Stocks continued to fall.
Other problems in the banking sector also remain potentially unresolved. Credit Suisse Group Inc
Shares rallied in Zurich on Thursday, a day after the Swiss giant agreed to borrow 50 billion Swiss francs, the equivalent of $53.7 billion, from the Swiss National Bank to ease its own crisis, but it’s not clear whether major unrest is imminent in Europe . Credit Suisse shares turned around and fell on Friday, and talks were underway on Saturday to acquire it from its larger rival UBS Group.
And top executives at First Republic Bank sold millions of dollars in company stock in the two months before the bank’s stock plummeted amid the panic over regional lender health, the Journal reported, a fact many people still won’t like the rescue operation ends.
Write to Colin Barr at firstname.lastname@example.org
Corrections & Enhancements
Credit Suisse Group AG shares rallied in Zurich. An earlier version of this article incorrectly referred to the bank as Credit Suisse Group Inc.
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