First Republic Bank was aided by a $30 billion bailout from leading US banks such as JPMorgan, Citi, and Goldman Sachs. Will this be beneficial for the bank?
Many major US banks, have contributed $30 billion in deposits to First Republic Bank in an effort to save the institution, which was entangled in a widening crisis brought on by the failure of two other mid-sized US banks during the previous week. The plan was announced less than a day after Credit Suisse, a Swiss bank, obtained an emergency central bank loan of up to $54 billion to support its liquidity, which helped to quell fears of a global banking crisis.
The Downfall of Silicon Valley Bank (SVB) had its impact on First Republic Bank Share Prices
The move was prompted by the downfall of Silicon Valley Bank last week, which caused concerns about potential hidden risks within the broader banking sector. Despite the financial market turmoil, the European Central Bank went ahead with a 50-basis-point rate hike on Thursday. At the same time, Singaporean and Australian authorities have reported keeping a close eye on the financial markets.
First Republic Bank’s stock ended up 10% on the rescue announcement, but it plunged 18% in after-market trade after the bank said it would cancel its dividend. The bank disclosed a dwindling cash position before the rescue package and said it borrowed billions from the Federal Reserve over the past week. The stock sank 17% in post-market trading, following a 10% gain during the regular session.
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Big US Banks comes to rescue of First Republic Bank
Federal Reserve Chairman Jerome Powell, Janet Yellen, the US Treasury Secretary, and JPMorgan Chase CEO Jamie Dimon, who together discussed the package on Tuesday, put together the rescue effort for First Republic Bank. Despite the difficulties, Yellen affirmed that the nation’s banking system is still robust, primarily due to persistent and potent measures taken after the downfall of Silicon Valley Bank.
The move spreads the risk of financial contagion to bigger banks, achieves “a false sense of confidence,” and is “bad policy,” according to billionaire investor Bill Ackman, the founder of investment firm Pershing Square. In a statement after the official close of US exchanges, First Republic said its borrowings from the Fed varied from $20 billion to $109 billion from March 10 to March 15.
We will update this story if any new developments are found.