JPMorgan Chase has been sounding out US banks about assembling an industry-backed solution to shore up First Republic Bank, as Wall Street lenders try to contain the fallout from the collapse of two major financial institutions in the past week.
Shares of First Republic have plunged and its debt rating has been downgraded in the wake of the failure of fellow California lender Silicon Valley Bank last Friday.
JPMorgan, which is advising First Republic, made calls on Wednesday night to several Wall Street banks, including Morgan Stanley and Goldman Sachs, to find funding for First Republic, according to two people familiar with the matter.
The exact details of the plan are still being hashed out but could involve a consortium of banks depositing a significant sum at First Republic, one of the people said.
A US official made clear the federal government was in favour of a deal, saying that the prospect of top banks taking action to support First Republic was a sign of confidence in the strength of the banking system and would complement action taken by regulators last weekend.
First Republic is exploring options including a capital raise to bolster its financial position. Its shares, which have fallen 66 per cent in the past week, rose by more than 4 per cent on Thursday afternoon on hopes a deal would be agreed. There is no guarantee that First Republic will be able to raise more funding, in which case it may have to explore a sale, one of the people said.
To strengthen its financial position the bank took funding from the Federal Reserve and JPMorgan on Sunday, which gave it $70bn of unused liquidity, excluding money available from the new federal Bank Term Funding Program.
Silicon Valley Bank collapse
Explore the latest news and analysis on the fallout from the failure of Silicon Valley Bank, the lender to start-ups which became the second-largest bank collapse in US history
First Republic has struggled to restore confidence among investors after the collapse of SVB on Friday, followed by Signature Bank on Sunday. Its share price is down more than 70 per cent since the Federal Deposit Insurance Corporation stepped in to take over SVB, sparking fears that contagion would spread to other regional lenders.
On Tuesday, Moody’s placed all its long-term ratings for First Republic on watch for a downgrade, saying they reflected the bank’s reliance on uninsured deposits and unrealised losses on held-to-maturity securities. Fitch and S&P Global slashed First Republic’s credit rating on Wednesday.
First Republic’s difficulties come despite reassurance from US President Joe Biden that regulators will do “whatever is needed” to protect depositors and emergency funding measures from the US government to boost liquidity.
