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A group of 11 financial institutions has agreed to deposit a total of $30 billion in First Republic Bank in what is intended to be an indication of confidence in the struggling banking system, the banks involved announced Thursday afternoon.
Wells Fargo, Citigroup, Bank of America, and JPMorgan Chase have each agreed to deposit approximately $5 billion, while Morgan Stanley and Goldman Sachs have both vowed to deposit roughly $2.5 billion a piece, with PNC, U.S. Bancorp, Truist, Bank of New York Mellon, and State Street each contributing $1 billion deposits.
"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 of banks said in a statement.
According to an announcement from First Republic, the deposits are required to stay at the bank for a minimum of 120 days. Regional bank stocks initially fell early Thursday but reversed and climbed after reports of the deposit plan began to circulate.
The deposit plan comes after a rough week for First Republic, which saw its stocks plummet in recent days after the collapse of Silicon Valley last Friday, which was then further fueled by the failure of Signature Bank over the weekend. Both SVB and Signature had a high number of uninsured deposits, along with First Republic, which led to mounting fears that customers would pull their money out of First Republic. The deposits coming from the 11 major banks are also uninsured.
At one point Thursday, First Republic's stock traded below $20 after having closed at $115 on March 8. The stock was also repeatedly halted during the session and increased almost 10 percent on the day, closing at $34.27 a share.
In a joint statement, First Republic's executive chairman, Jim Herbert, and CEO, Mike Roffler, said "we would like to share our deep appreciation" for the 11 banks making deposits.
On Sunday, the financial institution announced that it had more than $70 billion in available liquidity along with additional funds it could possibly raise from the Federal Reserve's Bank Term Funding Program. Despite, the bank's liquidity and possible additional funding, investors dumped First Republic's stock.
On Thursday, the bank announced that it had approximately $34 billion in cash as of March 15, which did not include the promised $30 billion in deposits from the 11 banks. The institution had borrowed tens of billions of dollars from the Federal Reserve and the Federal Home Loan Bank over the last week, but according to the bank, its daily outflows have "slowed considerably." 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 Treasury Department, The Federal Reserve, Federal Deposit Insurance Corporation, and the Office of the Comptroller of the Currency said in a joint statement.
During the last great financial crisis, larger financial institutions bought several struggling banks for cheap in an attempt to calm the banking system. However, thanks to the unrealized losses on First Republic's bond portfolio that were caused by last year's rapid rise in interest rates have made an acquisition of the bank unappealing to larger financial firms.
The markdown would include the First Republic's held-to-maturity bond portfolio, which would create a $25 billion hole in the bank's balance sheet.
First Republic caters to high-end clientele and firms with its business, including residential real estate loans and wealth management. The bank reported more than $212 billion in assets at the end of 2022 and more than $1.6 billion in net income last year.
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