US Treasury Secretary Janet Yellen Al Drago (Bloomberg)
American banks have been unable to shake off their fears for a week after the fall of Silvergate Bank and Silicon Valley Bank and this Thursday the big firms of the world’s leading power have come together to save what seemed to be the next victim, the First Republic Bank. As announced by the Treasury, the Federal Reserve and other regulatory bodies, eleven entities have come together to inject up to 30,000 million dollars into the troubled bank.
Specifically, JPMorgan Chase, Bank of America Corp., Citigroup Inc. and Wells Fargo & Co. will each contribute $5 billion, while Goldman Sachs Group and Morgan Stanley will back another $2.5 billion each. PNC Financial Services Group Inc., Bank of New York Mellon Corp., Truist Financial Corp., US Bancorp and State StreetCorp finally contribute $1 billion, Bloomberg reports. The deal was forged between industry representatives and officials including Treasury Secretary Janet Yellen, Federal Reserve Chairman Jerome Powell and JPMorgan CEO Jamie Dimon, who finalized the details of the package on Tuesday, according to Reuters.
First Republic had been the firm most affected by the general falls in the stock market in recent days. The action began the session on Thursday with falls of more than 20%, and after learning about the injection, a rise of 10% was recorded at the close of the market. But nervousness returned after the bell rang: First Republica fell 18% in after-hours trading after announcing the suspension of dividend payments and making known its treasury situation and the volume of emergency liquidity it needs.
The First Republic aid package comes a few days after the Federal Reserve announced a plan to protect 100% of the deposits of the failed Silicon Valley Bank. The support for First Republic also comes hours after Swiss bank Credit Suisse obtained an emergency loan from the Swiss central bank of up to $54 billion to bolster its liquidity. Central bank-backed deals helped restore calm to global markets on Thursday.
However, while the support has averted an imminent collapse, investors were surprised by revelations about First Republic’s treasury position, even after the injection, and by how much it and others have leaned on the Fed. Federal in the last month. Data released Thursday shows that US banks have turned to emergency liquidity from the Federal Reserve in recent days, increasing the size of the central bank’s balance sheet after months of contraction.
Before knowing the injection of 30,000 million, the Wall Street Journal revealed that its main executives sold shares for more than 11.8 million dollars (11.1 million euros) in the two months prior to the crisis. Something similar happened with those responsible for Silicon Valley Bank, who got rid of titles for more than 84 million dollars (79.12 million euros) in the last two years.
The agencies Fitch Ratings and S&P Global downgraded First Republic’s rating to “junk bonds” on Wednesday, while noting the risk of a rapid withdrawal of deposits.
Defense of the authorities
The rescue of the First Republic occurred shortly after the appearance of the Secretary of the Treasury, Janet Yellen, this Thursday in front of Congress to report on the situation. Yellen said the authorities have taken “decisive and forceful” steps to bolster confidence in the banking system, which “remains strong.” At the same time, and in line with the message from the White House on Monday, the secretary pointed out that the shareholders of the banks are not and will not be protected by Washington.
For its part, to try to tackle the crisis, the US Federal Deposit Insurance Corporation (FDIC) is testing the possibility of trying to sell the still existing assets of Silicon Valley Bank (SVB) and Signature Bank this Friday, according to the agency. from Reuters news. This would be the regulator’s second attempt to divest SVB, after failing last weekend.
Official confidence contrasts with the skepticism of analysts. Goldman Sachs on Wednesday raised the chances of the US economy going into recession due to the banking crisis. The financial giant considers that there is a 35% chance that the United States will face a drop in its economic activity next year, despite the good employment and consumption data.
Follow all the information about Cinco Días on Facebook, Twitter and Linkedin, or in our newsletter Agenda de Cinco Días
Five Days agenda
The most important economic appointments of the day, with the keys and the context to understand their scope
Leave a Reply