JPMorgan CEO Jamie Dimon leading charge for First Republic Bank rescue plan
Wall Street banking heavyweights are discussing a capital infusion in the troubled lender to stave off fears of a GFC repeat following Credit Suisse collapse.
JPMorgan Chase & Co chief executive Jamie Dimon is leading discussions with the chief executives of other big banks about fresh efforts to stabilise troubled First Republic Bank.
The discussions, while preliminary, have focused on how the industry could arrange for an investment that would boost the bank’s capital, according to people familiar with the matter. Among the options on the table, the people said, is an investment in First Republic by the banks themselves.
Eleven big banks banded together last week to deposit $US30 billion in First Republic in an effort to restore confidence in the lender. The San Francisco-based bank’s customers have withdrawn some $70 billion since the collapse of Silicon Valley Bank earlier this month, The Wall Street Journal previously reported.
The plan could involve the banks converting some or all of the $US30 billion in deposits into a capital infusion, some of the people said.
The situation is fluid and fast-moving. First Republic is facing intense pressure to reassure investors that it is viable. Its stock has lost more than 90 per cent in March. Shares closed down 47 per cent at $US12.18 on Monday, after the Journal first reported on the talks. It was the stock’s lowest closing price on record.
A sale or outside capital injection are also among the options on the table, people familiar with the matter said.
JPMorgan’s investment bankers were hired to advise First Republic on its various options, one of the people said.
Mr Dimon and his fellow CEOs are trying to instil confidence in a banking system facing its worst crisis in 15 years. In tandem with federal regulators, Mr Dimon led last week’s effort to shore up First Republic, according to people familiar with the matter.
First Republic has become the latest focal point, as fears about midsize U.S. banks have spread broadly across the global financial system over the past week and a half.
The rapid collapse of Silicon Valley Bank, a bank that catered to start-ups and their investors, has investors and customers worried about other regional banks that have a similar profile. Like SVB, First Republic’s large share of uninsured deposits makes it susceptible to a run.
Two days after SVB’s collapse, the Federal Deposit Insurance Corp. said it had taken over Signature Bank, which had also had a run on deposits.
Then, a sharp decline in Credit Suisse Group shares last week culminated in a hasty merger with cross-town rival UBS Group on Sunday.
The banking turmoil has jolted financial markets. But on Monday, some US regional banks led the stock market higher. New York Community Bancorp shares soared 32 per cent after the bank agreed to buy much of Signature Bank’s loans and deposits.
PacWest Bancorp climbed about 11 per cent, U.S. Bancorp rose nearly 5 per cent and Comerica Inc. was up nearly 2 per cent. The S&P 500 rose 0.9 per cent, while the Dow Jones Industrial Average gained 1.2 per cent. The tech-heavy Nasdaq Composite rose 0.4 per cent.
Still, Monday’s gains weren’t big enough to return those banks to where they were trading before the Silicon Valley Bank meltdown. PacWest shares remain nearly 62 per cent below their closing price on March 8. US Bancorp and Comerica shares are still down about 24 per cent and 34 per cent, respectively.
For investors, the episode laid bare the differences between smaller, specialised lenders, and the biggest U.S. banks, which became tightly regulated and highly diversified after nearly collapsing during the last financial crisis.
The big banks’ strength has left them in a position to aid smaller competitors like First Republic.
Mr Dimon and JPMorgan, the largest U.S. bank by assets, have a long history of stepping into the breach during crises. JPMorgan bought Bear Stearns after it failed in 2008, then took on Washington Mutual Inc.’s operations.
Mr Dimon parlayed his crisis management into a statesman role among the bank executives. He is the longest-serving CEO of the bunch, in the role since 2005, and regularly uses his perch to advise government officials and promote policy moves he says will help the economy.
His First Republic intervention echoes the Panic of 1907, when a semi-retired J. Pierpont Morgan rallied his fellow bankers to shore up a number of lenders that had seen a run on their deposits, helping stave off a nationwide financial crisis.
The recent banking turmoil has taken a heavy toll on First Republic. Deposit outflows slowed Friday after the bank-led rescue, yet First Republic still has a big hole left to fill on its balance sheet.
“First Republic Bank is well-positioned to manage short-term deposit activity,” a bank spokesman said Sunday.
S&P Global on Sunday downgraded First Republic’s credit rating deeper into junk territory, saying last week’s deposit infusion may not be enough to overcome the bank’s “substantial business, liquidity, funding, and profitability challenges”.
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