Wall Street rides to the rescue as 11 banks pledge First Republic $30 billion in deposits
A group of financial institutions has agreed to deposit $30 billion in First Republic in what's meant to be a sign of confidence in the banking system, the banks announced Thursday afternoon.
Bank of America, Wells Fargo, Citigroup and JPMorgan Chase will contribute about $5 billion apiece, while Goldman Sachs and Morgan Stanley will deposit around $2.5 billion, the banks said in a news release. Truist, PNC, U.S. Bancorp, State Street and Bank of New York Mellon will deposit about $1 billion each.
"This action by America's largest banks reflects their confidence in First Republic and in banks of all sizes, and it demonstrates their overall commitment to helping banks serve their customers and communities," the group said in a statement.
The deposits are obligated to stay at the bank for at least 120 days, according to an announcement from First Republic. Regional bank stocks initially fell on Thursday but reversed higher after reports from CNBC's David Faber and others about the development of the deposit plan.
The news comes after First Republic's stock has been pummeled in recent days, sparked by the collapse of Silicon Valley Bank last Friday and Signature Bank over the weekend. Both of those banks had a high number of uninsured deposits, as did First Republic, leading to concern that customers would pull their money out. The new deposits from the major banks are uninsured.
First Republic's stock, which closed at $115 per share on March 8, traded below $20 at one point Thursday. The stock was halted repeatedly during the session and rose nearly 10% on the day, closing at $34.27 per share.
First Republic's executive chairman Jim Herbert and CEO Mike Roffler said in a statement that "we would like to share our deep appreciation" for the 11 banks.
The bank had said Sunday that it had more than $70 billion in availability liquidity, not counting additional funds it could possibly raise from the Federal Reserve's Bank Term Funding Program, but that was not enough to keep investors from dumping the stock.
On Thursday, the bank said that it had about $34 billion in cash as of March 15, not counting the new $30 billion in deposits. First Republic had borrowed tens of billions of dollars from the Federal Reserve and the Federal Home Loan Bank over the past week but daily deposit outflows have now "slowed considerably," the bank said. First Republic is also suspending its common stock dividend.
"This show of support by a group of large banks is most welcome, and demonstrates the resilience of the banking system," The Federal Reserve, Treasury Department, Federal Deposit Insurance Corporation and Office of the Comptroller of the Currency said in a joint statement.
In the great financial crisis, several struggling banks were bought for cheap by the larger firms in an effort to help calm the banking system. However, the unrealized losses on First Republic's bond portfolio due to last year's rapid rise in interest rates have made an acquisition unappealing, the sources said.
The markdown, which would involve the bank's held-to-maturity bond portfolio, would amount to about a $25 billion hole on First Republic's balance sheet, sources told Faber.
First Republic typically caters to high-end clients and firms, and its business includes wealth management and residential real estate loans. The company reported more than $212 billion assets at the end of December and generated more than $1.6 billion in net income last year.