America’s top bankers and key government officials seemed pretty pleased with themselves in the US on Thursday afternoon, when Wall Street came together to rescue First Republic, the struggling San Francisco-based lender seen as a possible next domino in America’s mini-banking crisis.
The country’s largest financial institutions together deposited $30 billion+ with First Republic, $25 billion of which was split between JPMorgan, Bank of America, Citi, Wells Fargo, Goldman and Morgan Stanley. The initial commitment is for at least 120 days.
“This action by America’s largest banks reflects their confidence in First Republic and in banks of all sizes, and it demonstrates their overall commitment to helping banks serve their customers and communities,” a joint press release read.
After the bell, First Republic suspended its dividend and said the collective support strengthens its liquidity and reflects the “ongoing quality” of the bank’s business.
In a statement, Founder and Executive Chairman Jim Herbert and CEO Mike Roffler (both of whom sold shares over the past few months, according to The Wall Street Journal) conveyed their “deep appreciation” for the support.
Not including the $30 billion from Thursday’s joint deposit arrangement, First Republic had $34 billion in cash as of March 15. Borrowings from the Fed ranged from $20 billion to $109 billion from March 10 through March 15, and short-term borrowings from FHLB rose by $10 billion since March 9, First Republic said, adding that insured deposits have been stable, while daily deposit outflows were described as having “slowed considerably.”
As you can imagine, the FDIC, the Fed and Treasury welcomed the arrangement. “This show of support by a group of large banks is most welcome, and demonstrates the resilience of the banking system,” a joint statement attributed to Janet Yellen and Jerome Powell said. The Fed reiterated that it “stands ready to provide liquidity.”
If you’re wondering whether Jamie Dimon might’ve been instrumental in putting all of this together, the answer is “Yes.” He met with Yellen on Thursday afternoon in Washington after Yellen pitched him on the idea of a group effort, which he subsequently pitched to Wall Street. Yellen’s original plan was floated during a conference call with Powell on Tuesday, according to Bloomberg.
This is temporary band aid. First republic is going to be sold, as one or in pieces. It would nicely with Morgan Stanley for instance.
It would fit..
In times like this is comforting to know we have 2 Treasury Secretaries…
Is this like the French foreign minister, I love Germany so much I want there to be two of them?
$300BN borrowing this week from discount window, BTFP, FDIC. Add $50BN for CS and $70BN JPM-led for FRC. The money firehose directed at putting out the bank fire is huge and, I think, sufficient.
Similarly huge stop-out flush of trades/positions of CTAs, hedge funds, and I suspect traders of many stripes incl commodity.
Focus turns to implications
– for Fed inflation actions and rates
– for bank sector profitability, capital raises, lending, consolidation
– for markets broadly
I don’t think inflation has gone away as a driving factor of CB action, nor that Tech or the closely related ConsDisc and CommSrvc sectors somehow became defensive havens to safely hide in. Whined as one who’s sure been on the wrong side of the trade recently.
Discount window chart is here: https://heisenbergreport.com/2023/03/16/signs-of-the-financial-apocalypse/
Funny.
I was reminiscing about the years 2007-2009 with someone, and the conversation turned to how those who made it through look back on those years with something approaching fond nostalgia, even though at the time it was stress, fear, and exhaustion. Naturally we started wondering if we’ll look back at 2022-2024 the same way. It gets easier, with each trip through the rodeo.
Correction, sorry, $30BN for FRC. A tide-over until the big banks can decide who wants to buy it?
“In a statement, Founder and Exceutive Chairman Jim Herbert and CEO Mike Roffler (both of whom sold shares over the past few months, according to the Wall Street Journal) conveyed their ‘deep appreciation’ for the support.”
No kidding, Sherlock.
H-Man, the issue is the small banks. They are underwater if you have to liquidate the portfolios. A run on these banks means a lot of support Fed.
If the Fed raises rates. those bank portfolios, call them holdings, decrease more in value. More bad news from the small banks
This all suggests no further hikes for the time being.
H-Man, the only way out is to reprice the bank book, which means rates can’t go up. How is the last post doing?
And the banking industry marches closer to an Oligopoly.
Yellen to Jamie: Godfather, be my friend…..
I hate to be cynical- nobody else here is- but I wonder if they are just recycling a bunch of unwanted deposits…