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Embattled San Francisco-based First Republic saw its shares close up 10% Thursday on news of a bank group rescue deal.
First Republic (NYSE: FRC) shares rebounded off losses amid regional bank stock advancement after initially plunging 17% in Thursday’s extended trading. The San Francisco-based commercial bank recently secured a $30 billion rescue deal from several big banks in an unprecedented show of support.
First Republic Shares Up 10% amid Concerted Assistive Bank Group Efforts
First Republic shares closed up 10% Thursday following the bank news after trading down more than 30% earlier. Meanwhile, Western Alliance (NYSE: WAL), Zions Bancorp (NASDAQ: ZION), and SPDR S&P Regional Bank ETF (KRE) also closed higher for the session. Like First Republic, the trio had also declined earlier in the trading session.
These assistive banks are some of the world’s leading financial powerhouses and pledged to contribute from $5 billion to $1 billion apiece. They include Wells Fargo (NYSE: WFC), Citigroup (NYSE: C), Bank of America (NYSE: BAC), and JPMorgan (NYSE: JPM) – each pledging $5 billion. Also, Goldman Sachs (NYSE: GS) and Morgan Stanley (NYSE: MS) agreed to deposit $2.5 billion. Meanwhile, the remaining five banks will contribute $1 billion each to help First Republic. They are Bank of New York Mellon (NYSE: BK), State Street Corporation (NYSE: STT), US Bancorp (NYSE: USB), PNC (NYSE: PNC), and Truist (NYSE: TFC).
According to reports, JP Morgan CEO Jamie Dimon orchestrated the rescue plan earlier this week alongside government fiscal representatives. These include Federal Reserve Chair Jerome Powell and Treasury Secretary Janet Yellen.
The banking group underscored its commitment to assisting First Republic and enhancing the financial sector in a statement that read:
“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.”
In a separate statement, Citigroup also pointed out the importance of mid-size and community banks, saying:
“America benefits from a healthy and functioning financial system, and banks of all sizes are critical to our economy.”
Silicon Valley-Triggered Fiasco
First Republic’s problems began on the heels of the Silicon Valley Bank (SVB) collapse last Friday. SVB’s demise was significantly due to uninsured deposits – a balance sheet defect that First Republic was also guilty of. Following Silicon Valley’s bankruptcy, investors scrambled to identify other regional banks with similar balance sheet issues.
This development led to the discovery that First Republic had the third-highest uninsured deposits rate among US banks. 70% of its deposits are uninsured, which is substantially higher than the 55% median for medium-sized banks. The only two financial institutions that ranked higher than the San Francisco-based bank – Silicon Valley and Signature Bank, had already collapsed.
Shares of First Republic bank was at a massive 75% drawdown in March as of Wednesday’s close. In addition, the bank’s debt saw a downgrade by S&P Global Ratings and Fitch Ratings.
As of the end of last year, First Republic had $212 billion worth of assets and $176.4 billion in deposits.