Mar 16 (Reuters) – Shares in First Republic Bank (FRC.N) fell 17% in extended trading on Thursday, despite an unprecedented demonstration of support for the bank by nearly a dozen of the world’s biggest financial institutions.
Wall gave up 11 in an unusual bailout orchestrated by JPMorgan Chase & Co (JPM.N) chief executive Jamie Dimon along with Treasury Secretary Janet Yellen and Federal Reserve Chair Jerome Powell earlier this week, according to multiple sources -Street companies to contribute $30 billion to First Republic.
Investor relief was short-lived, however. Shares of the bank, which had closed 10% higher after a volatile day that saw trading halted 17 times, plummeted in after-hours trading. Volume reached 15.6 million shares in the post-market session.
The reversal came after First Republic said in a filing that it was suspending its dividend. It also said it had a cash position of about $34 billion, not including the $30 billion in new deposits.
The company also said it borrowed as much as $109 billion from the Fed between March 10 and March 15 and another $10 billion from the Federal Home Loan Bank on March 9.
The reversal in First Republic stocks following the bailout of the largest US banks underscores the magnitude of nervousness in global markets triggered when two regional banks collapsed. Separate attempts by US and European regulators earlier this week to reassure investors with contingency measures to boost confidence in the banking sector have not met with any success.
Albion Financial Group chief investment officer Jason Ware said Thursday’s Dimon-led intervention in the banking sector was a “shot in the arm of the system” but more was likely needed. “It’s not big enough,” Ware said.
Ware added that it was also becoming apparent in investors’ minds that there were deeper issues at First Republic.
RESCUE PACKAGE
Founded in 1985, First Republic had $212 billion in assets and $176.4 billion in deposits, according to its annual report late last year.
A branch of First Republic Bank is pictured in Midtown Manhattan in New York City, New York, the United States, March 13, 2023. REUTERS/Mike Segar
About 70% of their deposits are uninsured, which is above the median of 55% for midsize banks and third-highest in the group after Silicon Valley Bank and Signature Bank, according to a Bank of America note.
The bank’s shares have been hit hard in the past few days following the collapse of Silicon Valley Bank.
As the situation worsened, Dimon discussed the idea of a bailout with Yellen and Powell earlier this week, two sources familiar with the matter said.
Citigroup Inc (CN) CEO Jane Fraser also reached out to big banks to win them over to the bailout, two other sources familiar with the matter said.
A key player in the deal was Rodgin Cohen, a veteran attorney at Sullivan & Cromwell, two sources familiar with the matter said. Sullivan & Cromwell did not immediately respond to a request for comment.
In the bailout, major lenders including JPMorgan, Bank of America Corp (BAC.N), Citigroup and Wells Fargo & Co (WFC.N) each made $5 billion in uninsured deposits with First Republic.
Goldman Sachs Group Inc (GS.N) and Morgan Stanley (MS.N) also agreed to invest $2.5 billion each. Other lenders including BNY Mellon (BK.N), PNC Financial Services Group (PNC.N), State Street Corp (STT.N), Truist Financial Corp (TFC.N) and US Bancorp (USB.N) channeled 1 $1 billion in deposits with San Francisco-based lender.
The banks initially hold the funds with First Republic for at least 120 days.
“America benefits from a healthy and functioning financial system, and banks of all sizes are vital to our economy,” Citigroup said in a statement, emphasizing the importance of mid-tier and community banks.
“This sign of support from a group of large banks is very welcome and shows the resilience of the banking system,” regulators said in a joint statement shortly after the announcement.
Powell said the Fed is always ready to provide liquidity through its discount window.
Reporting from Shreyashi Sanyal, Lisa Pauline Mattackal, Niket Nishant and Mehnaz Yasmin in Bengaluru, as well as Chris Prentice, Nupur Anand and Lananh Nguyen, Megan Davies and David French in New York and Pete Schroeder and Andrea Shalal in Washington; Edited by Anil D’Silva, Shounak Dasgupta, Anna Driver, Lincoln Feast and Kim Coghill
Our standards: The Thomson Reuters Trust Principles.
Comments are closed.