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Rumors of a possible sale | Big US banks to the rescue First Republic



(New York) Eleven major American banks chose Thursday to come together to the rescue of the establishment in difficulty First Republic and thus prevent it from becoming the next domino to fall after three bankruptcies in a row.

They have pledged to make a total of $30 billion in deposits in First Republic. This is the sign, according to them, of their “confidence in the banking system” of the country, indicates a joint press release.

This action was welcomed by the US authorities, the Ministry of the Economy, the central bank (Fed) and two financial regulators, saying in a separate press release that it “demonstrates the resilience” of the banking system.

These entities have been struggling since the weekend to reassure markets and individuals about the situation of the banks.

The Fed said Thursday that it has lent nearly $12 billion to US banks since Sunday so that they have the funds needed to honor withdrawal requests from their customers.

First Republic, 14e American bank by the size of the assets, had been in the hot seat for several days after the close failures of Silicon Valley Bank, Signature Bank and Silvergate, because it mainly serves a wealthy clientele.

Investors and analysts feared that many customers would prefer to move their money to establishments that a priori presented no risk of bankruptcy, because they were too big for regulators to let them close, and that First Republic would in turn have to be liquidated.

A grim prospect for confidence in the banking system as a whole.

The big banks have therefore decided to act in concert.

“The banking system has strong credit, abundant liquidity, large capital and high profitability. Recent events have not changed this situation,” they say in their joint press release.

Vote of confidence

The day had started badly on Thursday for First Republic: after having already lost 73% in one week, the action lost up to 36% after an article by the Bloomberg agency claiming that the bank was exploring “strategic options” for its future, including a possible sale.

However, the stock recovered as rumors emerged of a possible joint intervention by the big banks. It ended up 12%.

Bank of America, Citigroup, JPMorgan Chase and Wells Fargo, the country’s four largest banks by asset size, are expected to contribute $5 billion each.

The investment banks Goldman Sachs and Morgan Stanley must pay 2.5 billion each while BNY Mellon, PNC Bank, State Street, Truist and US Bank must pay 1 billion.

The bank’s leaders, in their own press release, thanked their counterparts.

“Their collective support strengthens our liquidity position, reflects the quality of our business, and is a vote of confidence for First Republic and the entire U.S. banking system,” wrote Jim Herbert, Founder and Chairman of the Board of Directors. establishment, and Mike Roffler, general manager.

The total amount of daily withdrawals “has slowed significantly,” executives say. “The bank will now focus on reducing its borrowing and assessing the composition and size of its balance sheet,” they add.

Founded in 1985 and headquartered in San Francisco, First Republic provides personal and corporate private banking and wealth management services, primarily in California and the East Coast. It has grown rapidly in recent years, rising from $22 billion in assets at the end of 2010 to $212 billion at the end of 2022.

Already closely watched for a few days, the bank had indicated on Sunday that it had “strengthened and diversified its liquidity” and had 70 billion dollars thanks to facilities offered by the American central bank, and to JPMorgan Chase.

Insufficient in the eyes of the rating agencies S&P Global Ratings and Fitch, which on Wednesday lowered the rating they give to the debt of the company in the category of speculative investments.

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