US Banks Inject $30B into First Republic Bank, Stock Pummeled Despite Confidence in Banking System
Major U.S. bank stocks fell on Friday, less than a day after joining forces to funnel $30 billion worth of deposits into First Republic Bank (FRC).[0] The news came after First Republic's stock had been pummeled in recent days, sparked by the collapse of Silicon Valley Bank last Friday and Signature Bank over the weekend.[1] First Republic, along with the other two banks, had an abundance of uninsured deposits, which caused apprehension that customers would withdraw their funds.[1]
On Thursday, 11 American banks headed by JP Morgan (JPM), Bank of America (BAC), and Citigroup (C) worked together to infuse $30 billion of uninsured deposits into the struggling First Republic (FRC).[2]
The move gave First Republic a significant cash pile, but the bank did announce after the bell that it had borrowed tens of billions of dollars from the Federal Reserve and the Federal Home Loan Bank over the past week.[3] The bank also had to suspend its dividend to conserve cash.[4]
Friday saw the company's share price drop by a significant 33%, demonstrating that investors' contentment has not been restored.[5] On Friday, Moody's Investors Service lowered the credit rating of First Republic Bank to “junk” status due to a “worsening of the bank's financial situation.”[5] This week, Fitch Ratings and S&P Global Ratings lowered First Republic Bank's debt rating.[6]
Billionaire investor Bill Ackman has highlighted the potential dangers of a financial contagion as a result of the $30 billion deposit lifeline that has been extended to First Republic Bank (NYSE: FRC) by major banks. He has urged for an immediate temporary systemwide deposit guarantee.[4]
He commented, “The press release about the $30B of deposits raised more inquiries than it resolved. Because of the lack of clarity, market players are inclined to presume the negative. As I have said before, timing is vital. We have let multiple days pass by. When there is a crisis of trust, half measures are not effective.”[7]
President Joe Biden has requested that Congress permit regulators to recover bank executives' compensation in the aftermath of the collapse.[8]
The behavior of America's biggest financial institutions shows their faith in the nation's banking system.[9] Utilizing our financial strength and liquidity, we are working together to provide support to the areas most in need.[10] Millions of jobs are created, and communities are uplifted, by smaller- and medium-sized banks that support their local customers and businesses.[10]
0. “Bank Stock Crash Deepens: Dow Sinks 400 Points As Top Banks Shed Another $54 Billion” Forbes, 17 Mar. 2023, https://www.forbes.com/sites/dereksaul/2023/03/17/bank-stock-crash-deepens-dow-sinks-400-points-as-top-banks-shed-another-54-billion/
1. “Wall Street rides to the rescue as 11 banks pledge First Republic $30 billion in deposits” CNBC, 16 Mar. 2023, https://www.cnbc.com/2023/03/16/group-of-financial-institutions-in-talks-to-deposit-about-20-billion-in-first-republic-sources-say.html
2. “Here's why the banking crisis is over, says top long-term sector analyst” Yahoo News, 17 Mar. 2023, https://news.yahoo.com/heres-why-the-banking-crisis-is-over-says-top-long-term-sector-analyst-101647794.html
3. “First Republic Bank's debt cut to junk by Moody's” MarketWatch, 18 Mar. 2023, https://www.marketwatch.com/story/first-republic-bank-gets-downgrade-to-junk-from-moodys-6d95c54f
4. “Bill Ackman flags contagion risks from $30B rescue deal for First Republic” Seeking Alpha, 17 Mar. 2023, https://seekingalpha.com/news/3948509-bill-ackman-flags-contagion-risks-from-30b-rescue-deal-for-first-republic
5. “First Republic Cut to Junk by Moody’s After $30 Billion Rescue” Yahoo Finance, 18 Mar. 2023, https://finance.yahoo.com/news/first-republic-cut-junk-moody-005734764.html
6. “Major banks pledge $30 billion rescue for First Republic” The Week, 17 Mar. 2023, https://theweek.com/us/1021872/major-banks-pledge-30-billion-rescue-for-first-republic
7. “Bill Ackman Calls FRC Rescue Deal a “Fictional Vote of Confidence”” TipRanks, 17 Mar. 2023, https://www.tipranks.com/news/bill-ackman-calls-frc-rescue-deal-a-fictional-vote-of-confidence
8. “First Republic Bank executives sold stock right before the crash” Markets Insider, 17 Mar. 2023, https://markets.businessinsider.com/news/stocks/first-republic-bank-executives-sold-stock-right-before-svb-crash-2023-3
9. “Bank of America, Citigroup, JPMorgan Chase, Wells Fargo, Goldman Sachs, Morgan Stanley, BNY Mellon, PNC Bank …” Business Wire, 16 Mar. 2023, https://www.businesswire.com/news/home/20230316005695/en/Bank-of-America-Citigroup-JPMorgan-Chase-Wells-Fargo-Goldman-Sachs-Morgan-Stanley-BNY-Mellon-PNC-Bank-State-Street-Truist-and-U.S.-Bank-to-Make-Uninsured-Deposits-Totaling-30-Billion-Into-First-Republic-Bank
10. “First Republic Gets $30 Billion Lifeline from JPMorgan, Citi, Bank of America, Wells Fargo” Investopedia, 16 Mar. 2023, https://www.investopedia.com/first-republic-s-usd30b-rescue-by-jp-morgan-citi-and-bank-of-america-7367932
