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Sweden’s largest pension fund Alecta dumped its First Republic Bank stake at a $728 million loss amid broader US banking losses.
Swedish pension fund Alecta recently offloaded its First Republic Bank (NYSE: FRC) shares following the latter’s massive drawdown. The leading Swedish pension fund was the fifth-largest shareholder at the embattled bank but now appears to have lost faith in First Republic. According to Alecta CEO Magnus Billing, uncertainty regarding the future of First Republic Bank is “too great”. Magnus also explained that this uncertainty was partly due to the bank’s downgrading to “junk status”.
First Republic shares are changing hands at $15.77 after hitting a low of $12.15 two days ago. Billing lamented:
“Obviously, it’s a big failure for us as an investor. We need to learn something from that and take actions based on the lessons learned.”
Alecta spokesperson Jacob Lapidus revealed yesterday that the pension fund sold all its First Republic shares at a sizable $728 million loss. In addition, the fund also sustained losses following the collapse of two other American banks, Silicon Valley Bank (SVB) and Signature Bank. The losses Alecta incurred at SVB ($862 million) and Signature Bank ($310 million) bring the fund’s total setback to roughly $2 billion.
Since the beginning of March, First Republic’s valuation has plummeted by a staggering 90%.
Alecta Relatively Unaffected by First Republic Bank & Other Recent US Setbacks
As Sweden’s largest pension fund, Alecta boasts approximately $116 billion in assets under management (AUM). In addition, the fund represents the accounts of 350,000 companies and 2.6 million individuals in the Scandinavian nation. Interestingly, the losses suffered by the US banks did not affect Alecta’s solvency ratio.
Even though Alecta is large enough to sustain those losses comfortably, the news of the deficit sparked outrage in Sweden. This public outrage stemmed from the fund exiting stakes in local lenders, investing instead in the US banks.
Alecta announced an internal investigation into its investment processes following the $2 billion US loss. Furthermore, the prominent pension fund also received a summons from Sweden’s financial authority. The Swedish government and central bank are reportedly monitoring the situation closely. However, the duo also moved to allay contagion fears and downplayed the risk of more severe economic instability.
First Republic in Deep Water amid Rescue Efforts
First Republic’s stock has been on a downward spiral despite concerted efforts by a coalition of big banks to keep it afloat. Recent reports revealed that 11 US banking giants led by JPMorgan (NYSE: JPM) contributed $30 billion to the flailing commercial bank. These banks are also devising a sustainable strategy to keep First Republic afloat and operational.
The banking group’s rescue plan for First Republic is unprecedented and has drawn commendations across the US financial sector. In a statement, the JPMorgan-led coalition also said:
“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 US Federal Reserve and Treasury Department are also reportedly working closely with the banking coalition to prop up First Republic.