Friday, March 17, 2023

First Republic Bank receives a $30 billion rescue package from major US institutions

Major US banks create $30 billion rescue package for First Republic Bank

 CAPE CANAVERAL: On Thursday, large US banks swooped in to save First Republic Bank, which was caught up in a widening crisis brought on by the collapse of two other mid-size US lenders in the past week. The banks put $30 billion in deposits into First Republic Bank.

Since Silicon Valley Bank collapsed last week as a result of bond losses accrued during the rise in interest rates last year, global banking stocks have been battered, raising concerns about what else may be lurking in the banking system as a whole.

The turmoil in the market had ensnared Swiss lender Credit Suisse within days, requiring it to borrow up to $54 billion from the central bank of Switzerland in order to boost liquidity.

By Thursday afternoon, big banks were leading an effort to boost support for First Republic, a regional lender whose shares had fallen 70% in the previous nine trading sessions. This effort brought the spotlight back to the United States.

According to a statement from the banks, the rescue involved some of the biggest names in US banking, such as JPMorgan Chase & Co., Citigroup Inc., Bank of America Corp., Wells Fargo & Co., Goldman Sachs, and Morgan Stanley.

According to a source familiar with the situation, the package was discussed on Tuesday by power brokers such as JPMorgan Chase CEO Jamie Dimon, Federal Reserve Chairman Jerome Powell, and US Treasury Secretary Janet Yellen.

The support, according to US regulators, was most welcome and demonstrated the banking system's resilience.

First Republic had access to $70 billion in funds following a Sunday financing round raised by JPMorgan. Yet, that neglected to quiet financial backers as stresses of an infection developed with the destruction of Mark Bank to follow that of SVB and contributors started moving money to bigger loan specialists.

On the news of the rescue, First Republic Bank's stock closed up 10%, but its shares fell 18% in after-hours trading after the bank said it would stop paying dividends.

Since March 6, the bank's stock price has fallen by more than 70%.

The news of the rescue also helped boost Wall Street indexes. JP Morgan, Morgan Stanley, and Bank of America all gained more than one percent, and the benchmark S&P 500 Banks Index gained two percent.

More modest banks additionally bounced back from the new auction, with Fifth Third Bancorp, PNC Monetary Administrations Gathering and KeyCorp each acquiring than 4%.

Emergency liquidity Earlier in the day, Credit Suisse became the first major global bank to take up an emergency lifeline since the 2008 financial crisis. At the same time, concerns of contagion swept through the banking sector and raised questions about whether central banks will be able to maintain aggressive interest rate hikes to control inflation.

Lenders who were already concerned about a recession are now more likely to experience losses as a result of the difficulty that some businesses have had repaying or servicing loans due to the rapid rise in interest rates.

However, the European Central Bank raised interest rates by 50 basis points on Thursday, indicating that it had ample tools to provide liquidity support in the event of a need. It also emphasized the resilience of the banking sector in the Euro Area.

At its next meeting, the US Federal Reserve is expected to follow the ECB's move with a quarter-point interest rate hike that appeared to be delayed by banking sector turmoil just days ago.

Policymakers have attempted underscore that the ongoing disturbance is unique in relation to the worldwide monetary emergency a long time back as banks are better promoted and subsidizes all the more effectively accessible.

But data from the central bank on Thursday also showed that banks have been asking the Federal Reserve for record amounts of emergency liquidity in recent days, increasing the size of the Fed's balance sheet after months of contraction.

Money market economist Thomas Simons of investment bank Jefferies stated, "The numbers, as we see them right here, are more consistent with the idea that this is just an idiosyncratic issue at a handful of banks."

Yellen said the US banking framework stays sound thanks to "unequivocal and powerful" activities following the breakdown of Silicon Valley Bank.

One of the largest financial institutions in Europe, Allianz, stated that, "unlike what happened during" the 2007-2008 financial crisis, authorities were "well equipped" to deal with any liquidity crisis.

Buying time After its largest investor stated that it could not provide additional funds due to regulatory constraints, Credit Suisse, a bank with a 167-year history, became the most prominent European name swept up in the turmoil.

It stated that it would exercise its option to borrow up to 54 billion Swiss francs from the Swiss National Bank, confirming that it would provide sufficient collateral in exchange for liquidity.

Thursday saw a 19% increase in the closing price of Credit Suisse shares, making up for the 25% decline on Wednesday. Refinitiv data indicates that European banks have lost approximately $165 billion in market value since March 8, prior to the collapse of SVB last week.

Following a prolonged slide in its shares, Switzerland's second-largest bank's stock market value has decreased by 90% to approximately $8.66 billion from its peak of approximately $91 billion in February 2007.

Analysts said that the measures will give Credit Suisse more time to complete its planned restructuring and possibly take additional steps to reduce its size.

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