USA: Wall Street giants bail out First Republic Bank for $30 billion

A group of US financial institutions on Thursday bailed out Bank of the First Republic with 30,000 million as announced in a joint statement.

“Bank of America, Citigroup, JPMorgan Chase and Wells Fargo today announced that they will each make a $5 billion unsecured deposit with First Republic Bank. , State Street, Truist, and US Bank will make an uninsured deposit of $1 billion each,” the document says.

After this promotion announcement First Republic They rose by 11.42% at 15:42 local time (19:42 GMT), which contrasts sharply with a drop of almost 30% earlier this morning.

First Republic ranks third among US banks in terms of uninsured deposits after Silicon Valley Bank (SVB) and Signature Bank, according to a note by Raymond James.

First Republicwhich is based in San Francisco, was downgraded to junk on Wednesday by both Fitch Ratings and S&P Global.

With this move, First Republic is unable to follow the path of Silicon Valley Bank and Signature Bank, entities shut down by the authorities on Friday and Sunday, respectively, in a move that set off a wave of panic that later spread to Europe.

First Republic, Fourteenth Bank

First Republic, founded in 1985 in San Francisco, is the fourteenth bank USA by assets from 212,000 million at the end of 2022. This provides banking individuals and companies, as well as wealth management.

According to S&P Global Ratings, 68% of deposits in First Republic They are in accounts that exceed $250,000, the limit normally guaranteed by the federal agency FDCI. Hence the fears of the market.

Investors and analysts feared that many clients would choose to transfer their money to banks that a priori have no risk of failure because they are too big for regulators to allow them to close. But “the banking system has solid credit, abundant liquidity, significant capital and high profitability. Recent events have not changed this situation,” the 11 banks said in a joint statement.

Stormy days in the financial system

The announcement came after the collapse of three banks in less than a week in USAwhich mark the worst bankruptcies since the financial crisis of 2008 and prompted the US authorities to very quickly implement tough measures to protect deposits.

Authorities assessed there was a “serious risk of infection and mass withdrawals” among customers who had funds above what was federally guaranteed at the two banks, Treasury Secretary Janet Yellen explained this Thursday before a Senate committee.

Due to the situation of bank insolvency Silicon Valley Bank (SVB) and signature bankauthorities took control of both enterprises.

SVB, a historic start-up or growth company lender since the 1980s, has been hurt by interest rate hikes enacted by the Federal Reserve to curb inflation, and its clients, who have seen credit become more expensive, have begun withdrawing deposits.

Amid these concerns, the Federal Reserve also announced a mechanism to provide funds to banks if they need them to meet consumer demand.

After the markets closed on Thursday, the Fed announced that it had lent almost $12 billion to US banks since Sunday.

The fear of contagion has spread to Europe. In Switzerland, Credit Suisse shares were caught in a storm on Wednesday and plunged 24.24% on the stock market.

This Thursday, his stake rebounded after the organization announced early Thursday morning ET that it would take up to CHF 50,000 million ($53,700 million) from bank central.