Prevent contagion. Eleven major US banks chose Thursday to come together to the rescue of the troubled institution First Republic and thus avoid that it becomes the next domino to fall after three bankruptcies in a row including that of Silicon Valley Bank.
They have pledged to deposit a total of $30 billion into First Republic. This is the sign, according to them, of their "confidence in the banking system" of the country, said a joint statement.
This action was welcomed by the US authorities, the Ministry of the Economy, the central bank (Fed) and two financial regulators believing in a separate statement that it "demonstrates the resilience" of the banking system. These entities have been struggling since the weekend to reassure markets and individuals about the situation of banks.
$12 billion loaned by the Fed
The Fed said Thursday it has lent nearly $12 billion to U.S. banks since Sunday so they have the funds they need to honor their customers' withdrawal requests.
First Republic, the 14th largest U.S. bank by asset size, had been in the hot seat for several days after the close failures of Silicon Valley Bank, Signature Bank and Silvergate, because it mainly serves wealthy clients.
Investors and analysts feared that many customers would prefer to move their money to institutions that do not pose a priori risk of bankruptcy because they were too large for regulators to let them close, and that First Republic would have to be liquidated. This is a bleak outlook for confidence in the banking system as a whole. The big banks have therefore decided to act together.
"The banking system has strong credit, ample liquidity, large capital and high profitability. Recent events have not changed this situation," they said in their joint statement.
'Vote of confidence'
The day had started badly Thursday for First Republic: after having already lost 73% in a week, the share has lost up to 36% after a Bloomberg article claiming that the bank was exploring "strategic options" for its future, including a possible sale.
However, the stock recovered as rumours emerged about a possible joint intervention by the big banks. It ended up 12%.
Bank of America, Citigroup, JPMorgan Chase and Wells Fargo, the country's four largest banks by asset size, are expected to each contribute five billion dollars.
Investment banks Goldman Sachs and Morgan Stanley are to pay $2.5 billion each, while BNY Mellon, PNC Bank, State Street, Truist and U.S. Bank are to pay $1 billion.
The bank's executives, in their own statement, thanked their counterparts. "Their collective support strengthens our liquidity position, reflects the quality of our business, and is a vote of confidence for First Republic and the entire U.S. banking system," wrote Jim Herbert, founder and chairman of the bank's board of directors, and Mike Roffler, chief executive officer.
The total amount of daily withdrawals "has slowed considerably," the executives say. "The bank will now focus on reducing its borrowing and assessing the composition and size of its balance sheet," they add.
Founded in 1985 and headquartered in San Francisco, First Republic provides private banking for individuals and businesses, and wealth management, primarily in California and the East Coast. It has grown rapidly in recent years, from $22 billion in assets at the end of 2010 to $212 billion at the end of 2022.
Already closely monitored in recent days, the bank said Sunday to have "strengthened and diversified its liquidity" and have $ 70 billion thanks to facilities offered by the US central bank, and JPMorgan Chase.
Not enough in the eyes of the rating agencies S & P Global Ratings and Fitch, which had lowered Wednesday the rating they give to the debt of the company in the category of speculative investments.