BANK’S ‘CURE’ A RISK
$30B rescue in vain?
First Republic Bank shares plunged in trading Friday as hedge fund billionaire Bill Ackman warned that a historic $30 billion plan to rescue the troubled lender could fuel “financial contagion” in the banking sector.
First Republic’s stock slumped 32.8% in trading Friday despite Thursday’s news that a group of 11 banks led by JPMorgan Chase, Citigroup, Bank of America and Wells Fargo extended a lifeline to First Republic after it experienced a mass exodus of deposits this week.
First Republic will suspend dividend payments to shareholders while its board focuses “on reducing its borrowings and evaluating the composition and size of its balance sheet going forward,” a rep for the bank said.
Meanwhile, top executives at the embattled lender reportedly reaped a combined haul of nearly $12 million by dumping stock just before chaos unfolded in the banking sector — including sales that occurred as recently as this month.
The windfall included sales by First Republic’s Executive Chairman James Herbert II, who raked in $4.5 million from stock sales since the start of the year, The Wall Street Journal reported on Thursday, citing government documents.
In total, company executives have earned about $11.8 million in sales this year and sold stock at prices averaging just under $130 each, the Journal said.
Since February, the regional lender’s stock has plunged nearly 80% despite news of the rescue plan.
More questions
Ackman, who has repeatedly warned of a potential banking sector meltdown since Silicon Valley Bank went bust last week, argued the plan “raises more questions than answers.”
“The result is that FRB default risk is now being spread to our largest banks,” Ackman tweeted on Thursday night. “Spreading the risk of financial contagion to achieve a false sense of confidence in FRB is bad policy.”
JPMorgan Chase, Citigroup, Bank of America and Wells Fargo led the rescue by each pledging $5 billion of deposits, while other firms, including Morgan Stanley and Goldman Sachs, contributed smaller amounts.
The money represented a portion of the flood of deposits larger banks received this week as spooked investors shifted their money. Bank of America alone received more than $15 billion in deposits after the recent bank failures.
Ackman tweeted that BofA is going to acquire failed Signature Bank on Monday, without citing the source of his information.
“I don’t think this is good for America,” he wrote on Friday.