Thursday, April 18, 2024
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First Republic is rescued by the biggest banks on Wall Street

To prevent financial contagion and reassure the stability of the American financial system, eleven of the largest U.S. banks joined forces on Thursday and invested $30 billion into First Republic Bank, a smaller institution facing collapse following the implosion of Silicon Valley Bank a week prior.

According to the New York Times, the plan, which was hatched during a call between Treasury Secretary Janet L. Yellen and JPMorgan Chase CEO Jamie Dimon on Tuesday, involved each bank contributing at least $1 billion to demonstrate support for First Republic and signal to the market that the bank’s problems were not indicative of deeper issues in the industry.

In just 48 hours, the deal was finalized, and the resulting arrangement was unprecedented in decades, highlighting the severity of the banking sector’s current predicament. Four banks, JPMorgan Chase, Bank of America, Wells Fargo, and Citigroup, deposited the most significant sums, each contributing $5 billion, while Goldman Sachs and Morgan Stanley each invested $2.5 billion.

Additionally, PNC Financial, Truist, BNY Mellon, State Street, and U.S. Bank each deposited $1 billion. The announcement of the investment caused shares of First Republic, which had lost three-quarters of their value in recent days, to rally, but many other bank stocks, especially small and regional banks, continued to suffer.

The banking sector was also facing pressure from Credit Suisse, which was in dire straits before the Swiss central bank intervened early on Thursday.

Before the announcement, First Republic had hired advisers to explore options to save the bank, including a potential sale to a larger rival or a quick cash injection to ensure that the bank could cover customer withdrawals. Last weekend, the lender had attempted to shore up its finances with up to $70 billion in emergency loans from the Federal Reserve and JPMorgan.

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