The biggest US banks pledged $30 billion of fresh cash for First Republic Bank to stem the turmoil that has sent depositors fleeing from regional banks and shaken the country’s financial system. JPMorgan Chase & Co., Bank of America Corp., Citigroup Inc. and Wells Fargo & Co. will contribute $5 billion of uninsured deposits each, while Goldman Sachs Group Inc. and Morgan Stanley will kick in $2.5 billion apiece, according to a statement Thursday. Other banks will deposit smaller amounts as part of a plan devised along with US regulators.
“This action by America’s largest banks reflects their confidence in First Republic and in banks of all sizes,” the banks said in their statement. The consortium cited the outflows of uninsured deposits at a small number of banks following the collapse of Silicon Valley Bank and Signature Bank. First Republic has been exploring strategic options including a possible sale, Bloomberg News reported late Wednesday. The lender’s shares have plummeted in the aftermath of regulators’ seizure of fellow regional lenders Silicon Valley Bank and Signature Bank over the past week.
“This show of support by a group of large banks is most welcome, and demonstrates the resilience of the banking system,” US Treasury Secretary Janet Yellen, Federal Reserve Board Chair Jerome Powell, Federal Deposit Insurance Corp. Chairman Martin Gruenberg and Acting Comptroller of the Currency Michael Hsu said in a joint statement.
Also contributing deposits are PNC Financial Services Group Inc., Bank of New York Mellon Corp., Truist Financial Corp., U.S. Bancorp and State Street Corp., which will each put in $1 billion. The deal began to take shape Tuesday and came together in about two days, with the idea of bringing the banks on board broached during a call that included Yellen, Powell and Gruenberg, as well as Jamie Dimon, chief executive officer of JPMorgan, according to people familiar with the matter.
Yellen and Dimon agreed the idea had merit, with Dimon taking the lead to contact other bank leaders and Yellen making calls, too, said the people, who asked not to be identified discussing the private talks. Another call Thursday morning among regulators and CEOs helped finalize the plan. The deal includes deposits with an initial term of 120 days at market rates, First Republic said, and they could remain in place even longer, people familiar with the terms said.
In some ways, the rescue resembles the 1998 plan devised to bail out Long Term Capital Management without using public money, after the hedge fund made a set of disastrous wrong-way bets. Back then, the Fed convened a meeting of Wall Street executives from Merrill Lynch, Goldman Sachs and about a dozen others. They agreed to pump $3.65 billion into the fund to keep it afloat and avert a collapse in financial markets.
As with LTCM, the banks saw saving First Republic as ultimately in their best interests, rather than risk a widening panic that might engulf more of them, one of the people said. Unlike LTCM, the First Republic rescue isn’t a wind-down, but sets up the bank to have a future, which could still include shopping around for a buyer, the people said. The joint effort “is a powerful step to bolster liquidity and reflects our confidence in the critical role of regional banks in our economy and across the communities we serve,” Truist Chief Executive Officer Bill Rogers said in an emailed statement.
Capital One Financial Corp. was asked to participate in the consortium, but given the credit-card giant’s business mix and the fact that it didn’t have an existing relationship with First Republic, the company chose not to participate, according to a person familiar with the matter. A spokesman for Capital One declined to comment.
Shares of First Republic swung wildly Thursday, plunging as much as 36% early in the day, then surging as much as 28% midday after details of the emerging plan were first reported. The stock closed up 10% and then slipped in extended New York trading after the bank announced it was suspending its dividend.
First Republic, which specializes in private banking and has built up a wealth-management franchise with some $271 billion in assets, has made an effort to differentiate itself from SVB Financial Group’s Silicon Valley Bank. Unlike SVB, which counted startups and venture firms among its biggest clients, First Republic said that no sector represents more than 9% of total business deposits.
Silicon Valley Bank collapsed into FDIC receivership Friday after its customer base of tech startups grew concerned and pulled deposits. First Republic Chairman Jim Herbert and CEO Mike Roffler said in a statement that the banks’ “collective support strengthens our liquidity position, reflects the ongoing quality of our business, and is a vote of confidence for First Republic and the entire US banking system.”
As of Wednesday, First Republic had a cash position of about $34 billion, not including the deposits from the banks. Since the close of business on March 9, First Republic has increased short-term borrowings from the Federal Home Loan Bank by $10 billion at a rate of 5.09%, the company said. First Republic said it’s “focused on reducing its borrowings and evaluating the composition and size of its balance sheet,” and will suspend its stock dividend while it recovers.
First Republic has been working with JPMorgan as it tackles its challenges. On Sunday, the same day Signature Bank was taken over by regulators, First Republic said it “further enhanced and diversified its financial position” by securing additional liquidity from the Federal Reserve and JPMorgan. “The effort by the federal government to bring together the banking sector, including U.S. Bank, speaks to the strength of the overall financial system,” said a spokesman for the Minneapolis-based lender.