JPMorgan Chase CEO Jamie Dimon is reportedly leading a meeting with the chief executives of other big banks about new efforts to stabilize the imperiled First Republic Bank.
The Wall Street Journal reported on Monday that the banks are considering investing in First Republic to boost its capital. People familiar with the matter said there were other options, including a sale or outside capital injection.
Eleven of the nation's biggest banks including JPMorgan joined forces last week to rescue First Republic Bank with a $30 billion deposit, a move intended to shore up the beleaguered San Francisco lender amid fears of a broader financial crisis.
According to the banks, JPMorgan Chase, Citigroup, and Wells Fargo will contribute $5 billion and Goldman Sachs and Morgan Stanley will deposit about 2.5 billion as part of the deal. Truist, PNC, U.S. Bancorp, State Street and Bank of New York Mellon will provide about $1 billion apiece.
According to the Journal, a method used by Dimon to keep First Republic solvent could involve the banks converting some or all of the $30 billion in deposits into capital infusion.
This action by America's largest banks shows their confidence in the First Republic and banks of all sizes, and shows their commitment to helping banks serve their customers and communities, the group said in a joint statement.
Federal regulators praised the move, which came after several brutal and volatile days for First Republic shares.
There is mounting investor pressure on First Republic to take action. The lender saw its shares drop by about 47% during trading on Monday, leading to losses among regional banks. The stock which hovered around $115 per share on March 8 fell to $12 per share on Monday, the lowest level in a decade and down about 90% from one month ago.
S&P cut the bank's credit rating three notches to B from BB on Sunday and warned that another downgrade is possible.
The bank was boosted by additional funding from the Federal Reserve and JPMorgan because customers yanked billions of deposits out of First Republic last week. That first cash infusion gave the bank, which has $213 billion in assets roughly $70 billion in unused liquidity.
After the failure of Silicon Valley Bank, the 16th largest lender in the country this month, concerns at First Republic and other midsize began. It was the largest bank failure in the U.S. since the 2008 financial crisis.
SVB saw a huge boom in deposits during the pandemic, with its assets rising from $56 billion in June 2018 to $212 billion in March 2023, which was largely catered to tech companies, venture capital firms and high net-worth individuals. The bank invested a large portion of that cash into long-term U.S. Treasury bonds and other mortgage-backed securities. The strategy backfired when the Fed embarked on the most aggressive interest-rate hike campaign since the 1980s and the value of the securities fell.
The lender was forced to sell part of its bond holds at a steep $1.8 billion loss because of the decline in available funding for start-ups, which started drawing down more of their money to cover their expenses. When depositors realized that SVB was in a precarious financial situation, a bank run ensued.