© Reuters. A branch of First Republic Bank is pictured in Midtown Manhattan in New York, New York, U.S., March 13, 2023. REUTERS/Mike Segar
By Lananh Nguyen, Pete Schroeder, Andrea Shalal and Megan Davies
(Reuters) – Shares of First Republic Bank fell 17% in extended trading on Thursday, despite an unprecedented show of support for the bank from nearly a dozen of the world’s largest financial institutions.
In an unusual bailout that multiple sources say was orchestrated by JPMorgan Chase & Co (NYSE:) Chief Executive Jamie Dimon earlier this week with Treasury Secretary Janet Yellen and Federal Reserve Chairman Jerome Powell, 11 Wall Street firms said they were depositing $30 billion in First Republic.
Investor relief, however, was short-lived. Shares of the bank, which had closed up 10% after a volatile day in which trade was halted 17 times, tumbled after the market. Volume reached 15.6 million shares in the post-trade session.
The reversal came after the First Republic said in a filing that it was suspending its dividend. It also said it has a cash position of about $34 billion, not including $30 billion in new deposits.
The company also said it borrowed up to $109 billion from the Fed between March 10 and 15, and another $10 billion from the Federal Home Loan Bank on March 9.
The reversal in First Republic shares after the bailout deal for America’s biggest banks underscores the extent of jitters in global markets, sparked by the collapse of two regional banks. Earlier this week, separate attempts by US and European regulators to appease investors with emergency measures to bolster confidence in the banking sector were unsuccessful.
Jason Ware, chief investment officer of Albion Financial Group, said Thursday’s Dimon-led banking sector intervention was a “punch in the system’s arm” but more was likely to be needed. “It’s not big enough,” Ware said.
Ware added that it also crystallized in the minds of investors 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 at the end of last year, according to its annual report.
About 70% of its deposits are uninsured, above the median of 55% for mid-sized banks and the third highest in the group after Silicon Valley Bank and Signature Bank (NASDAQ:), according to a note from Bank of America.
The bank’s shares have been hit hard in recent 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 (NYSE:) CEO Jane Fraser has also reached out to major banks to recruit them to join the rescue effort, two other sources familiar with the matter said.
A central player in the deal was Rodgin Cohen, a veteran Sullivan & Cromwell attorney, said two of the sources familiar with the matter. Sullivan & Cromwell did not immediately respond to a request for comment.
The rescue saw major lenders such as JPMorgan, Bank of America Corp (NYSE:) Citigroup and Wells Fargo (NYSE:) & Co are making uninsured deposits of $5 billion each in the First Republic.
Goldman Sachs Group Inc. (NYSE:), Morgan Stanley (NYSE:) also agreed to inject $2.5 billion each. 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.
Banks will hold funds with First Republic for an initial term of at least 120 days.
“America benefits from a healthy and functioning financial system, and banks of all sizes are essential to our economy,” Citigroup said in a statement, stressing the importance of midsize and community banks.
“This show of support from a group of major banks is welcome and demonstrates the resilience of the banking system,” regulators said in a joint statement shortly after the announcement.
Powell said the Fed is still ready to provide liquidity through its discount window.