The biggest banks in the US are discussing a joint bailout of First Republic Bank FRC 13.16% totaling more than $25 billion to prop up the troubled lender, people familiar with the matter said.
JPMorgan Chase & Co., Citigroup Inc., Bank of America Corp. and Wells Fargo & Co. are in talks to each deposit $5 billion of their own money into First Republic, the people said. Morgan Stanley and Goldman Sachs Group Inc. and regional banks US Bancorp, PNC Financial Services Group Inc., PNC 3.84% and Truist Financial Corp. TFC 2.32% would all come in smaller amounts, the people said.
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Details are still being worked out and the banks have discussed the plan with officials and regulators in Washington, DC, the people said. A deal could be announced today.
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. The deal could be structured so that the banks would effectively return some of the money they collected from panicked First Republic depositors, some of the people said.
Any bailout deal could solve First Republic’s immediate problems of a falling share price and fleeing depositors. But the bank will still have to deal with a tougher business environment in a higher interest rate world and depositors will suddenly become aware of the pitfalls of large uninsured balances.
The bailout would be an extraordinary effort to protect the entire banking system from widespread panic by turning First Republic into a firewall. Two banks have already failed in the past week after depositors withdrew billions, and fears have grown that the First Republic could be next.
Treasury Secretary Janet Yellen said Thursday in her opening remarks before the Senate Treasury Committee that the US banking system remains “healthy” following the collapse of Silicon Valley Bank and Signature Bank. Photo: Al Drago/Bloomberg
First Republic stock has been under pressure for days, falling sharply Thursday morning on concerns over the bank’s health following the collapse of Silicon Valley Bank. The stock reversed its loss from Thursday and was up about 5% in late afternoon trade after the Wall Street Journal reported on the plan.
The collapse of Silicon Valley Bank last week raised concerns about other regional banks with large collections of uninsured deposits. First Republic also served a similar Bay Area clientele as the failed bank.
Customers withdrew billions in deposits from First Republic over the weekend, and the bank sought to stem the tide with a deal announced Sunday that included additional funding from the Federal Reserve and JPMorgan, giving the bank a total of $70 billion in available liquidity.
The bank has said it is stable and deposit losses are not overwhelming, people familiar with the matter said.
But S&P Global Ratings downgraded the bank’s bonds to junk status on Wednesday and investors continued to sell, fueling further uncertainty.
The bank’s stock is down about 60% this week. Its market cap has fallen to about $5 billion from $21 billion on March 8, when the SVB crisis began.
The fast-moving situation is reminiscent of the drama in the banking system during the 2008 financial crisis, when JPMorgan and its CEO Jamie Dimon played the role of the white knight and bought Bear Stearns and then Washington Mutual. Trials, losses and political pressure followed. Mr Dimon has said he would never again sign a government-led bailout deal.
First Republic’s business and stock valuation has long been the envy of the banking industry. Their customers are wealthy individuals and companies, mainly on the coasts. The lending business revolves around giving huge mortgages to clients like Mark Zuckerberg. Few of these loans ever went wrong. The bank had approximately $213 billion in assets at the end of 2022.
The bank’s profits surged in 2022, but the Fed’s aggressive rate hikes took their toll. First Republic’s wealthy clients were no longer content with leaving huge sums of money in bank accounts that didn’t earn interest.
—Laura Cooper, Lauren Thomas, and Rebecca Ballhaus contributed to this article.
Write to David Benoit at [email protected] and AnnaMaria Andriotis at [email protected]
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