The world has witnessed the problems of the Federal Reserve having a difficult time holding the U.S. and the world financial systems together, after the chilling collapse of Silicon Valley Bank, amidst the existing interest rates and inflation woes. Despite the U.S. Federal Government’s assurances and attempts to protect taxpayers from the ramifications of the infamous SVB collapse, shares of regional banks have been crippling to crashes.
Several bank stocks including Signature Bank, First Republic, and PacWest Bancorp were halted on the unfateful Friday, post Silicon Valley Bank’s collapse contagion fears. The US Banking Stock market suffered a $100 billion crash in a single day, due to SVB.
Berkshire Hathaway fame billionaire Warren Buffett suggested that the reason for the ill-fated investments in the doom of SVB’s portfolio, including $15 billion on its largest group of securities, was due to the lack of a chief risk officer – a CEO who learns how to avoid a crisis.
First Republic Bank Shares Are In A Freefall:
First Republic Bank (FRC) took the biggest hit with a 62 percent drop, owing to SVB’s deeds of financial mismanagement.
On Monday, the bank’s shares tanked by 71 percent before regaining its footing on a ground 50 percent lower than its Friday ordeals, according to Barron’s. Investors responded to regulators’ decision of shutting down SVB, while other financial institutions too faced double-digit losses.
The bank’s shares volume hit 15.6 million shares in the post-market session when it closed 10 percent higher, even after the day filled with volatile trading which saw slumping after halting 17 times.
This predicament was quite short-lived as First Republic Bank announced suspending its dividend while also claiming $34 billion in cash, which excluded the newly deposited $30 billion. The financial institution also said that it had obtained a loan between March 10 – 15, up to $109 billion from the Fed, in addition to a $10 billion borrowing from the Federal Home Loan Bank on March 9.
The First Republic Bank Rescue Intervention:
According to its 2022’s Annual Report, First Republic Bank held $212 billion in assets and $176.4 billion in deposits. The 1985-established financial institution’s uninsured deposits are 70 percent, floating above the median of 55 percent for other medium-sized banks, according to Bank of America.
Ranking third behind Silicon Valley Bank and Signature Bank, First Republic has been facing troubles since the aftermath of the SVB Collapse.
In an unprecedented rescue, JPMorgan Chase’s Jamie Dimon teamed up with Federal Reserve Chair Jerome Powell and Treasury Secretary Janet Yellen to support the failing banks, earlier this week – 11 Wall Street firms, the world’s largest financial institutions, deposited a lifeline of $30 billion into the First Republic.
“The Fed is always ready to provide liquidity through its discount window.”
– Powell
Attempts to sustain the bank, much to the investors’ relief, seemed to dissipate in vain when First Republic Bank’s shares fell 17 percent more in extended trading on Thursday.
The SVB and Signature Bank failures loomed gloomy darkness over the banking industry, and the Dimon-led intervention team reached out to Citigroup Inc’s CEO Jane Fraser, sources close to the matter revealed. Fraser in turn moved to appeal to recruit larger banks in an attempt to rescue.
“Banks of all sizes are critical to our economy and America benefits from a healthy and functioning financial system.”
– Citigroup’s statement on mid-size and community banks.
The lifeline rescue’s central player was a veteran lawyer of Sullivan & Cromwell, Rodgin Cohen.
Uninsured deposits of $5 billion each were agreed upon by JPMorgan, Bank of America Corp, Citigroup and Wells Fargo, whereas other institutions such as Goldman Sachs and Morgan Stanley channeled $2.5 billion each into the First Republic Bank. PNC Financial Services, State Street Corp, Truist Financial Corp, BNY Mellon and U.S. Bancorp pumped in $1 billion in deposits, with all the lending organizations mutually consenting to sustain these funds at First Republic for an initial term of 120 days.
Soon after this announcement, regulators issued a joint statement, welcoming the unity of the large banks.
“This show of support demonstrates the resilience of the banking system.”
Even with the rescue deals, First Republic bank shares reversed, proving that the shockwaves felt throughout the global markets are an understatement, alongside two separate emergency measures by the U.S. and European regulators to induce faith and confidence in the financial system, which did not stick.
Chief investment officer of the Albion Financial Group, Jason Ware suggested that the rescue intervention of Thursday was not big enough and that the failure of this attempt also solidified the idea of deeper problems at First Republic, in the investors’ minds.
“The Dimon-led team gave a shot in the arm for the system but more was needed, likely.”
– Ware
