By Pete Schroeder, Chris Prentice and Nupur Anand
(RockedBuzz via Reuters) – Big US banks injected $30 billion in deposits into First Republic Bank on Thursday, swooping to bail out the lender embroiled in a spreading crisis triggered by the collapse of two other midsize US lenders in the US. ‘last week.
Banking stocks globally have been hit since Silicon Valley Bank collapsed last week on bond-related losses that piled up as interest rates hiked last year, raising questions about what else could be lurking in the wider banking system.
Within days, market turmoil engulfed Swiss lender Credit Suisse, forcing it to borrow up to $54 billion from the Swiss central bank to shore up liquidity.
The spotlight returned to the US on Thursday afternoon as big banks led an effort to shore up support for First Republic, a regional lender whose shares had tumbled 70% in the past nine trading sessions.
Some of the biggest US banking names including JPMorgan Chase & Co, Citigroup Inc, Bank of America Corp, Wells Fargo & Co, Goldman Sachs and Morgan Stanley were involved in the bailout, according to a statement from the banks.
The deal was cobbled together by powerful middlemen including US Treasury Secretary Janet Yellen, Federal Reserve Chairman Jerome Powell and JPMorgan Chase CEO Jamie Dimon, who discussed the package on Tuesday, according to a source familiar with it. of the situation.
US regulators said the show of support was very welcome and showed the banking system’s resilience.
A funding round raised Sunday through JPMorgan gave First Republic access to $70 billion in funds. But that failed to calm investors as concerns of contagion deepened with Signature Bank’s demise to follow that of SVB and depositors began moving money to larger lenders.
Shares of First Republic Bank closed 10% higher on news of the bailout, but its shares fell 18% in post-sale trading after the bank said it would suspend its dividend.
The bank’s share price has fallen more than 70% since March 6.
News of the bailout also helped boost Wall Street indexes, with JP Morgan, Morgan Stanley and Bank of America all up more than 1%, while the benchmark S&P 500 Banks index recovered 2.2 %. Smaller banks also recovered from their recent sell-off, with Fifth Third Bancorp, PNC Financial Services Group and KeyCorp each gaining more than 4%.
Earlier in the day, Credit Suisse became the first major global bank to adopt a lifeline since the 2008 financial crisis, as fears of contagion engulfed the banking sector and raised questions about central banks’ ability to sustain aggressive hikes. interest rates to curb inflation.
Rapidly rising interest rates have made it harder for some businesses to repay or repay loans, increasing the chances of losses for lenders already worried about a recession.
However, the European Central Bank raised interest rates by 50 basis points on Thursday as reported, underlining the resilience of the euro area banking sector while ensuring it had plenty of tools in place to offer liquidity support if needed.
The US Federal Reserve is expected to follow the ECB’s move at its next meeting with a quarter-point hike in interest rates that just days ago seemed derailed by the turmoil in the banking sector.
Politicians have tried to emphasize that the current turbulence is different from the global financial crisis 15 years ago as banks are better capitalized and funds more readily available.
But central bank data on Thursday also showed that banks have sought record amounts of emergency liquidity from the Federal Reserve in recent days, increasing the size of the Fed’s balance sheet after months of contraction.
“The numbers, as we see them right here, are more consistent with the idea that this is just an idiosyncratic problem at a handful of banks,” said Thomas Simons, a money market economist at investment bank Jefferies.
Yellen said the US banking system remains robust thanks to “decisive and forceful” actions following the collapse of Silicon Valley Bank.
Allianz, one of Europe’s largest financial firms, said authorities were “well equipped” to deal with any liquidity crisis, “unlike what happened during” the 2007-2008 financial crisis.
Credit Suisse, a bank with a 167-year history, became Europe’s biggest name caught in the turmoil after its biggest investor said it could not provide more funds due to regulatory constraints.
It said it would exercise an option to borrow up to 50 billion Swiss francs ($54 billion) from the Swiss National Bank, which it confirmed it would provide liquidity to the bank against sufficient collateral.
Credit Suisse shares closed 19% higher on Thursday, recouping part of Wednesday’s 25% drop. Since March 8, before last week’s SVB collapse, European banks have lost about $165 billion in market value, data from Refinitiv shows.
The stock market value of Switzerland’s second-largest bank fell 90% from its February 2007 peak of about $91 billion, to about $8.66 billion following a sustained decline in its shares.
Analysts said the measures would buy Credit Suisse time to carry out a planned restructuring and possibly take further steps to reduce the Swiss lender.
(Reporting by Pete Schroeder and Chris Prentice in Washington, Nupur Anand in New York, Tom Westbrook in Singapore, Scott Murdoch in Sydney, John Revill in Zurich, Amanda Cooper in London, Tom Sims in Frankfurt, Akriti Sharma in Bengaluru, Rae Wee in Singapore, Chiara Elisei and Dhara Ranasinghe in London, Vera Eckert and Ludwig Burger in Frankfurt, Yasmin Mehnaz in Bangalore, Noel Randewich in Oakland, CaliforniaWriting by Deepa Babington, Sam Holmes and Alexander SmithEditing by Tomasz Janowski and Matthew Lewis)