The Wall Street Journal reported Monday that banks are considering investing directly in First Republic to increase its capital. According to the Journal, sources familiar with the matter said that there are other options, including a sale or an outside capital injection.
Eleven of the nation’s largest banks, including JPMorgan, joined forces last week in saving First Republic Bank with a $30 Billion deposit. This was a move to help the bank in San Francisco amid fears of a wider financial crisis.
JPMorgan Chase and Citigroup, Bank of America, Bank of America, and Wells Fargo will each contribute $5billion; Goldman Sachs will deposit approximately $ 2.5 billion each, according to a press release from the banks. Truist, U. S. Bancorp State Street, Bank of New York Mellon, Truist and U. S. Bancorp will each contribute approximately $1 billion.
"This action by America’s largest banks reflects them confidence in First Republic, and in banks of any size, and it demonstrates they overall commitment to helping banks service their customers and communities," the group stated in a joint statement.
First Republic is under increasing investor pressure to act. The lender's shares fell by 47% during Monday trading, which led to losses among regional banks. The stock, which was hovering around $115 per share March 8, fell to $12 per share Monday, the lowest level in a decade. It also dropped about 90% from a month ago.
Customers took billions of dollars out of First Republic last Wednesday, prompting the bank's financial stability to be strengthened with additional funding from JPMorgan and the Federal Reserve. The bank, which has $213 billion in assets, received the first cash injection. It also had $70 billion in untapped liquidity.
First Republic and other midsize banks were concerned after the historic collapse of Silicon Valley Bank, the 16th largest lender in the United States. This happened following a liquidity crisis. It was the most severe U. S. bank failure in 2008 since the global financial crisis.
SVB, which was primarily a bank catering to high-net-worth individuals, tech companies, and venture capital firms, saw a massive boom in deposits during the pandemic. Its assets grew from $56 billion in June 2018, to $212 billion by March 2023.The bank responded by investing large amounts of the cash in long-term U. S. Treasury Bonds and other mortgage-backed securities. The Fed launched the most aggressive interest rate hike campaign since 1980s. This strategy proved to be disastrous and the securities' value plummeted.
This coincided with a decrease in funding available for start-ups. They began drawing down more money to cover their expenses. The lender was forced to sell a portion of its bond holdings at a huge $1.8 billion loss. A bank run was triggered when depositors realized that SVB had a very difficult financial situation.
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