Big American Banks Inject $30bn into First Republic to Avert Crisis

The US is trying to quell panic over the health of the banking system. Credit: Carlos Delgado, CC-BY-SA-1/Wikipedia

A group of big American banks has injected $30bn into a smaller regional bank, First Republic, to avert the crisis in the sector.

The move came as authorities in the US are trying to quell panic over the health of the banking system, after the collapse of Silicon Valley Bank last week and Signature Bank on Sunday.

Worries about the sector have spread globally, raising fears of a crisis.

US regulators called the move “most welcome”, while the banks which included JP Morgan Chase, Citigroup and Bank of America said their action reflected their “confidence”.

They said the banking system had plenty of cash and made big profits.

“Recent events did nothing to change this,” they said. “The actions of America’s largest banks reflect their confidence in the country’s banking system.”

Troubled First Republic

Founded in 1985, First Republic had $212 billion in assets and $176.4 billion in deposits as of the end of last year, according to its annual report.

About 70% of its deposits are uninsured, above the median of 55% for medium-sized banks and the third highest in the group after Silicon Valley Bank and Signature Bank, according to a Bank of America note.

Reports of plans for aid from the 11 banks helped lift financial markets and sent shares in First Republic surging more than 20% at one point, triggering trading halts.

The bank had seen its share price plunge nearly 70% over the last week, as investors worried it was the next bank at risk of a rush of customers withdrawing their deposits.

Investors’ relief was short-lived

However, as Reuters reports the San Francisco-based banks’ shares fell 17% in extended trading on Thursday, despite the unprecedented show of support.

Investors’ relief was short-lived, Reuters says. The bank’s shares, which had closed 10% higher after a volatile day that saw trading halted 17 times, slumped in after-market trading. Volume hit 15.6 million shares in the post-market session.

The reversal came after First Republic said in a filing that it was suspending its dividend. It also said it had a cash position of about $34 billion, excluding the $30 billion in new deposits.

Credit Suisse gets lifeline to avert a global crisis

Investors’ fears were temporarily eased after Credit Suisse’s announcement late Wednesday that it accepted a $53 billion lifeline from the Swiss National Bank for its own crisis, after shares of the Swiss lender tumbled.

Shares in Credit Suisse fell 24 percent on Wednesday after it said it had found “weakness” in its financial reporting. This prompted a general sell-off in European markets, and fears of a broader financial crisis.

The bank called the loan a “decisive action to pre-emptively strengthen its liquidity.”

In addition to the loan from the central bank, Credit Suisse also said it repurchased billions of dollars of its own debt to manage its liabilities and interest payment expenses. The offer covers $2.5 billion of US dollar bonds and €500 million ($529 million) of euro bonds.

Problems in the banking sector surfaced in the US last week when Silicon Valley Bank (SVB), the country’s 16th-largest lender, collapsed in the biggest failure of a US bank since 2008.

That was followed two days later by the failure of New York’s Signature Bank.