© Reuters. A First Republic Bank branch is pictured in Midtown Manhattan in New York City, New York, U.S., March 13, 2023. REUTERS/Mike Segar
By Lananh Nguyen, Pete Schroeder, Andrea Shalal, and Megan Davies
(Reuters) – An agreement to deposit $30 billion in Bank of the First Republic (NYSE:) announced Thursday was put together by top power brokers from the US Treasury, the Federal Reserve and banks, including JPMorgan Chase & Co (NYSE:) after a sharp drop in shares of First Republic, according to sources.
The planned bailout package was discussed by Treasury Secretary Janet Yellen, Federal Reserve Chairman Jerome Powell and JPMorgan Chase & Co CEO Jamie Dimon earlier this week, two sources familiar with the matter said. the situation.
Citigroup Inc (NYSE:) CEO Jane Fraser has also approached big banks to recruit them to join the bailout effort, two other sources familiar with the matter said.
The personalities involved underline the seriousness of the situation in the US regional banking sector, hit by the collapse of SVB Financial on Friday and the closure of signature bank (NASDAQ:) on Sunday, the second and third largest bank failures in US history, respectively.
A central player in the deal was Rodgin Cohen, a veteran Sullivan & Cromwell attorney, two of the sources familiar with the matter said. Sullivan & Cromwell did not immediately respond to a request for comment.
The deal saw big lenders like JPMorgan, Bank of America Corp (NYSE:) Citigroup and fargo wells (NYSE:) & Co makes uninsured deposits of $5 billion each at the bank.
The Fed did not immediately respond to a request for comment.
The banks will hold the funds with the lender for an initial term of at least 120 days, First Republic said in a statement, adding that it had a cash position of about $34 billion, excluding the $30 billion package. The company also suspended its dividend, it said in a statement.
SVB’s fall has affected bank shares and lowered confidence in some smaller and regional lenders, raising questions about their survival in some cases.
“America benefits from a healthy and functional financial system, and banks of all sizes are critical to our economy,” Citigroup said in a statement, stressing the importance of midsize and community banks.
Goldman Sachs Group Inc (NYSE:), Morgan Stanley (NYSE:) also agreed to inject $2.5 billion each into the First Republic. Other lenders, including BNY Mellon (NYSE:), PNC Financial Services Group (NYSE:), state street Corp (NYSE:), Truist Financial (NYSE:) Corp and US Bancorp funneled $1 billion in deposits to the San Francisco-based lender.
First Republic shares closed 10% higher at $34.27 on Thursday, ending a volatile day that saw trading halted 17 times. It fell 36% earlier in the day, then jumped 40% on the bailout reports and then plunged 19% after the close on Thursday.
“Equity performance reflects volatility and uncertainty, which will take some time to subside,” said Stephen Biggar, director of financial services research at Argus Research.
The private sector bailout effort was arranged with government backing, according to two people with knowledge of the matter.
“This show of support from a group of large banks is very welcome and demonstrates the resilience of the banking system,” the regulators said in a joint statement shortly after the announcement.
Powell said the Fed was always ready to provide liquidity through its discount window.
The bailout was a “shrewd vote of confidence in contributing banks” by regulators, said Chris Kotowski, an analyst at Oppenheimer Research. “If regulators were seriously concerned about the viability of FRC even with the emergency financing package, they would not want to saddle these banks with additional losses given the shattered state of market confidence.”
A funding round raised through JPMorgan on Sunday gave First Republic access to a total of $70 billion in funding, but failed to calm investors as contagion concerns mounted.
Founded in 1985, First Republic had $212 billion in assets and $176.4 billion in deposits at the end of last year, according to its annual report.
About 70% of its deposits are uninsured, above the 55% median for midsize banks and the third-highest in the group after Silicon Valley Bank and Signature Bank, according to a Bank of America note.
Earlier on Thursday, Reuters reported that PacWest Corp is also in talks about increased liquidity with investment firm Atlas (NYSE:) SP Partners.
(This story has been resubmitted for clarification of origin in paragraphs 1-3)