San Francisco Chronicle

First Republic thrown a lifeline

$30 billion from top banks seeks to avert collapse at S.F. peer

- By Chase DiFelician­tonio

As San Francisco’s First Republic bank has seen its share price fall and credit downgraded, some of the nation’s largest banks deposited $30 billion into the bank amid concerns depositors would continue withdrawin­g money from the banks en masse.

In a statement, 11 banks said they would make uninsured deposits worth $30 billion into First Republic Bank to shore it up. The deposits came from Bank of America, Citigroup, JPMorgan Chase, Wells Fargo, Goldman Sachs, Morgan Stanley, BNY Mellon, PNC Bank, State Street, Truist and U.S. Bank.

“The actions of America’s largest banks reflect their confidence in the country’s banking system. Together, we are deploying our financial strength and liquidity into the larger system, where it is needed the most,” the statement from the group of banks said.

“This show of support by a group of large banks is most welcome, and demonstrat­es the resilience of the banking system,” the U.S. Treasury Department said in a statement Thursday.

The announceme­nt came in the wake of the collapse of Silicon Valley Bank and concerns that trouble for the industry could spread.

U.S. Treasury Secretary Janet Yellen said during questionin­g Thursday that American’s bank deposits are safe, Reuters reported, and that the emergency measures taken to secure uninsured deposits at Silicon Valley Bank and New York-based Signature Bank would not become the norm.

Bank deposits are normally insured up to $250,000 by the federal government. Federal officials said fees levied on big banks and Wall Street institutio­ns would be used to guarantee all deposits at Silicon Valley Bank and Signature Bank in the wake of their sudden failures and potential threat to the larger banking system.

Yellen said under questionin­g

“This show of support by a group of large banks is most welcome, and demonstrat­es the resilience of the banking system.” U.S. Treasury Department

Thursday that the same backstop would only be provided if other bank failures created a systemic risk to the banking sector.

A representa­tive for First Republic Bank declined, in an email, to comment on its financial health or the downgradin­g of its credit, as well as concerns it could see more customers pull their deposits.

The concern was not just localized to the U.S. The Swiss central bank agreed to loan financial giant Credit Suisse roughly $50 billion to bolster confidence in the lender.

The issue for banks like First Republic and Silicon Valley Bank had not been their loan portfolios, said Chris Thornberg, founder of Beacon Economics. Instead, those types of financial institutio­ns with close ties to venture capital had bought treasury bonds during the pandemic, partially with the billions of dollars in rescue money Congress infused into the economy. When inflation increased they had to sell those holdings at a loss, he said, putting huge strain on the banks themselves.

“Every bank is at risk of a run,” Thornberg said. “The whole point of a bank is you borrow short you lend long. If your depositors want their deposits back quickly, bang. You fail. They’re always on a razor’s edge.”

The bank announced over the weekend that it had taken steps to secure its finances with additional borrowing capacity from the Federal Reserve Bank and JPMorgan Chase, amounting to more than $70 billion.

That was Sunday, as the Federal Deposit Insurance Corp. was working to secure the assets of Silicon Valley Bank in the wake of its sudden and unexpected collapse.

Outlets including the New York Times reported that First Republic is exploring a possible sale amid steps taken by the bank to secure its balance sheet to calm jittery investors in the midst of the failures of Silicon Valley Bank and Signature Bank.

While First Republic’s shares have dropped around 70% over the past five days, they were ticking up slowly as of Thursday morning as news broke of possible rescue funds.

The bank held more than $176 billion in deposits at the end of last year, of which about 60% were in checking deposits.

The company employed 7,213 full time equivalent employees as of the end of the year, operating 93 offices, 84 of which are licensed to take deposits with the rest focused exclusivel­y on lending, wealth management or trust services.

Concerns were also raised in the wake of Silicon Valley Bank’s collapse that affordable housing projects it had helped fund in San Francisco and the Bay Area could be in jeopardy before federal regulators stepped in and backstoppe­d the bank’s deposits above the legally required $250,000.

First Republic appeared to have also invested in the affordable housing market, extending a $100 million commitment to the San Francisco Housing Accelerato­r Fund in 2020 with the goal of helping the nonprofit lender “preserve and produce more than 2,000 affordable homes in San Francisco over the next 5 years.”

The fund could not immediatel­y be reached for comment.

Fitch Ratings previously downgraded the bank after assessing that its deposit base was concentrat­ed “on banking wealthy and financiall­y sophistica­ted customers in select urban coastal markets in the U.S.”

Fitch, which is owned by Hearst Communicat­ions, which also owns The Chronicle, said that translated to a high proportion of uninsured deposits as a share of its total deposits, and that the ratings agency, “believes this feature of the business model has resulted in franchise erosion following the high profile failures of SVB Financial and Signature Bank, despite the deposit base being more diversifie­d from a sector/industry standpoint.”

The agency said Wednesday that while most banks could likely handle moderate outflows of deposits, “we continue to note funding and liquidity pressures represent an increasing vulnerabil­ity for the sector as a whole,” adding that “the pace and unpredicta­ble manner in which these crystalliz­ed for certain institutio­ns has far exceeded our baseline expectatio­ns.”

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