On Friday, 11 of the nation’s largest banks, including Bank of America, Citigroup, JPMorgan Chase, Wells Fargo, Goldman Sachs, Morgan Stanley, Bank of New York Mellon, PNC Bank, State Street, Truist and U.S. Bank, agreed to inject $30 billion into First Republic Bank (FRC) in the form of uninsured deposits.[0] The move by the banks came as First Republic’s stock price tumbled 33%, to about $23 a share, after a week of trading at $110 a share.[1] The stock rebound came despite the announcement that it would suspend its dividend to conserve cash.[2]
The injection of funds was widely seen as a vote of confidence in the U.S. banking system, but billionaire investor Bill Ackman questioned the move, saying it created a “false sense of confidence” and spread the risk of financial contagion to the biggest banks. He argued that the banking sector needs a temporary deposit guarantee until an expanded government insurance scheme is widely available.[2]
Friday evening, Moody’s Investors Service lowered First Republic Bank’s credit rating to below investment grade due to a “deterioration in the bank’s financial profile.”.[3] Earlier this week, S&P Global Ratings downgraded First Republic Bank’s credit rating to BB+ from A-, while Fitch cut the bank to BB from A- the same day.[4]
The consumer sentiment index from the University of Michigan decreased to 63.4 in March, which is a lower figure than the 67 reported in February. Inflation expectations remained high.[5] The result surprised analysts, who had expected the index to remain steady at 67.
President Joe Biden has requested that Congress grant regulators the power to take back the compensation of bank executives in the aftermath of a collapse.[6] He also urged Congress to put new measures in place that would levy penalties in the event of bank failures.
Overall, the actions of America’s largest banks reflect their confidence in the country’s banking system.[7] With their financial strength and liquidity, they are working together to support the smaller and medium-sized banks, which are critical to the health and functioning of our financial system.[8]
0. “Here’s why the banking crisis is over, says top long-term sector analyst” Yahoo News, 17 Mar. 2023, https://news.yahoo.com/heres-why-the-banking-crisis-is-over-says-top-long-term-sector-analyst-101647794.html
1. “First Republic sees ‘gob-smacking’ deposit outflows; shares plummet after rescue package” Crain’s New York Business, 17 Mar. 2023, https://www.crainsnewyork.com/finance/first-republic-sees-gob-smacking-deposit-outflows-shares-plummet-after-rescue-package
2. “Bill Ackman flags contagion risks from $30B rescue deal for First Republic” Seeking Alpha, 17 Mar. 2023, https://seekingalpha.com/news/3948509-bill-ackman-flags-contagion-risks-from-30b-rescue-deal-for-first-republic
3. “First Republic Cut to Junk by Moody’s After $30 Billion Rescue” Yahoo Finance, 18 Mar. 2023, https://finance.yahoo.com/news/first-republic-cut-junk-moody-005734764.html
4. “Major banks pledge $30 billion rescue for First Republic” The Week, 17 Mar. 2023, https://theweek.com/us/1021872/major-banks-pledge-30-billion-rescue-for-first-republic
5. “Markets Dip, Signaling Pause In Rally As Focus Shifts To Next Week’s Fed Decision: Analyst Says Brace For” Benzinga, 17 Mar. 2023, https://www.benzinga.com/news/earnings/23/03/31394507/nasdaq-s-p-futures-dip-signaling-pause-in-rally-as-focus-shifts-to-next-weeks-fed-decision-analyst–
6. “First Republic Bank executives sold stock right before the crash” Markets Insider, 17 Mar. 2023, https://markets.businessinsider.com/news/stocks/first-republic-bank-executives-sold-stock-right-before-svb-crash-2023-3
7. “Bank of America, Citigroup, JPMorgan Chase, Wells Fargo, Goldman Sachs, Morgan Stanley, BNY Mellon, PNC Bank …” Business Wire, 16 Mar. 2023, https://www.businesswire.com/news/home/20230316005695/en/Bank-of-America-Citigroup-JPMorgan-Chase-Wells-Fargo-Goldman-Sachs-Morgan-Stanley-BNY-Mellon-PNC-Bank-State-Street-Truist-and-U.S.-Bank-to-Make-Uninsured-Deposits-Totaling-30-Billion-Into-First-Republic-Bank
8. “First Republic Gets $30 Billion Lifeline from JPMorgan, Citi, Bank of America, Wells Fargo” Investopedia, 16 Mar. 2023, https://www.investopedia.com/first-republic-s-usd30b-rescue-by-jp-morgan-citi-and-bank-of-america-7367932