The big guys (and Jane Fraser) came to the rescue for beleaguered First Republic, which was teetering precariously on the brink this week.
The San Francisco-based lender was generally seen as the likely next domino to fall in America’s burgeoning bank crisis. The shares plunged anew early Thursday, amid reports it was exploring options.
The bank, which was downgraded to junk by both Fitch and S&P this week, was pondering a sale, but instead, JPMorgan, Citi, Wells Fargo, Bank of America, Goldman and Morgan Stanley decided to save it as a show of confidence.
“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. “Regional, midsize and small banks are critical to the health and functioning of our financial system, among the best in the world, and America’s banks do an extraordinary job serving the needs of their unique customers and communities.”
Between them, the giants agreed to deposit $25 billion with First Republic, $20 billion spilt evenly between JPMorgan, Citi, Wells and BofA, and $5 billion split evenly between Goldman and Morgan. PNC, BNY Mellon, Truist, US Bancorp and State Street chipped in a billion each, to make the total (uninsured) deposit a cool $30 billion.
“The banking system has strong credit, plenty of liquidity, strong capital and strong profitability,” everybody involved declared. “Recent events did nothing to change this.”
On Sunday, First Republic said it had access to $70 billion in liquidity between FHLB funding and Jamie Dimon, but that wasn’t enough to reassure the market. The stock suffered a veritable wipeout this week, and was halted Thursday for insanity.
News of the coordinated group rescue turned a 36% intraday decline into an intraday gain or, put differently, the stock was a kite with no string in strong winds.
The “best” part: First Republic executives sold $12 million in company stock at an average price of around $130 in the months that preceded the turmoil, including $4.5 million in sales by Executive Chairman James Herbert II, and $7 million between the bank’s CEO and Chief Credit Officer.
The stock sales were reported by The Wall Street Journal, which also said First Republic’s Chief Risk Officer sold on March 6, a mere 48 hours prior to SVB’s collapse.
