The heads of America’s biggest banks rallied on Thursday to help First Republic Bank, in an enlightened self-interested move designed to calm the entire industry.
First Republic received $30 billion in deposits from 11 banks after it was seen to be reeling and at risk of dragging others down with it.
“This show of support from a group of large banks is very welcome and demonstrates the resilience of the banking system,” said a group of US regulators led by Treasury Secretary Janet Yellen.
The bank was seen as vulnerable after the collapse of Silicon Valley Bank last week, with both SVB and First Republic having similar compositions in key areas.
When Silicon Valley Bank went into free fall on March 9, analysts thought First Republic would not be far behind.
The Struggling First Republic Bank received $30 billion in deposits from a consortium of major US banks as part of a bailout package for the regional lender.
A photo gallery on the bank’s home page shows clients at elegant meetings and events complete with champagne, spreads and live music.
Customers receive free loot from First Republic Bank at an Oktoberfest event
Banks participating in the rescue of the First Republic
- Bank of America
- JPMorgan Chase
- fargo wells
- Goldman Sachs
- Morgan Stanley
- Bank of New York Mellon
- PNC Bank
- state street
- US Bank
Both banks courted a clientele with high purchasing power.
SVB, founded in 1983 in Santa Clara, California, served tech investors and wineries in the Bay Area in particular, but also had a strong presence on the East Coast.
First Republic, launched in 1985 in San Francisco, attracted wealthy people on both coasts.
First Republic clients included Mark Zuckerberg, who was offered a 1.05 percent mortgage rate on a $5.95 million loan for his five-bedroom house in Palo Alto in 2011.
At the time, the average 30-year rate was 4.45 percent.
About three-quarters of the bank’s mortgage approvals are ‘jumbo’ loans, or loans greater than $417,000, the WSJ reported.
And the average mortgage in the First Republic is more than $1.2 million.
Many customers speak on first name terms with their branch manager, citing personal attention as the reason they bank with the lender.
SVB’s clients included billionaire venture capitalist Peter Thiel.
Mark Zuckerberg was among First Republic’s clients and received a mortgage on extremely favorable terms.
First Republic bankers flocked to San Francisco for a Wonka-themed Christmas party with no expense spared.
First Republic Bank is known for being the bank of the super-rich, with oyster-fed events for customers and dazzling Christmas parties for staff. Pictured: Sothebys’ Robert Callan Jr. Facebook post from inside a Willy Wonka-inspired First Republic bank holiday event
At First Republic, customers with an average net worth of $3.3 million were lured by lavish perks including cocktails at its 69 locations, stretching from Manhattan to Palm Beach.
Photos and videos posted to social media in December show a dazzling Willy Wonka-themed Christmas party, complete with dancers and an orchestra, at the luxurious Palace Hotel in San Francisco.
First Republic Bank vs. Silicon Valley Bank
SVB = 1981, Santa Clara
First Republic = 1985, San Francisco
Total assets at the end of 2022:
SVB = $209 billion
First Republic = $212.6 billion
SVB = $74 billion
First Republic = $166.9 billion
SVB = $175 billion
First Republic = $176.4 billion
Percentage of uninsured deposits:
BLS = 94%
First Republic = 68%
The bank’s clients also include businesses including Lincoln Center and the San Francisco Ballet.
The bank, like Silicon Valley Bank, got caught up when interest rates started to rise.
Their wealthy clientele found that they suddenly had a flurry of attractive offers on where to put their money and earn a good return, and they no longer needed to remain loyal to the First Republic.
First Republic was also considered to be at risk due to its high level of uninsured deposits.
A bank where most customers have less than $250,000 in their accounts, the limit that is federally insured, is considered nearly immune to a run on the bank, since depositors know their cash is safe.
The higher the percentage of customers with uninsured deposits, the more likely a bank is to see its customers panic and try to withdraw all their money, which may not be possible given the nature of banking.
SVB had a dangerously high percentage of uninsured deposits: 94 percent of its total.
First Republic has a hefty 68 percent, according to S&P Global.
At most banks, about half of all deposits are uninsured.
After Americans digested the weekend drama, First Republic shares plummeted 67 percent on Monday, with panicked customers rushing to branches to empty their accounts of their huge savings.
On Tuesday, Jamie Dimon, CEO of JPMorgan Chase, the nation’s largest bank, had a chat with Federal Reserve Chairman Jerome Powell and Treasury Secretary Janet Yellen to discuss their concerns about the First Republic. .
On Wednesday, according to Yahoo Finance, Dimon attended a Bank Policy Institute event and spoke with other bank executives, including Citigroup CEO Jane Fraser, about a possible plan to prop up First Republic.
The next day, the deal closed: JPMorgan Chase, Citigroup, Bank of America, Wells Fargo, Goldman Sachs, and Morgan Stanley were among the 11 banks involved in the bailout deal.
News of the deal sent Wall Street higher, with the Dow Jones Industrial Average rising as much as 400 points in recent trading.
News of the bailout deal sent Wall Street higher, with the Dow Jones Industrial Average rising
Following the news, First Republic shares closed up nearly 10 percent in volatile trading.
First Republic shares closed up nearly 10 percent in volatile trading. The stock had fallen 36 percent earlier in the day before reports of the bailout sent them as much as 40 percent.
However, First Republic shares have lost two-thirds of their value in the past seven days and are down more than 65 percent month-to-date.
Thursday’s deal is expected to end the wild week, but concern is now shifting to Credit Suisse, which has been backed by the Swiss Central Bank, and threatens much broader consequences if it falters.
The Federal Reserve has launched an investigation into SVB’s mismanagement, and its findings could cause further consternation as well.