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Yellen, Dimon, Powell helped clinch First Republic deal with key lawyer -sources

2023-03-16T21:58:10Z

George Ball, Chairman of Sanders Morris Harris, said that the troubles at First Republic Bank make it “an interesting example of investors, I think, anticipating a problem where none exists. But the very anticipation of the drawdown in their deposit base has put the bank at some degree of risk.”

A First Republic Bank branch is pictured in Midtown Manhattan in New York City, New York, U.S., March 13, 2023. REUTERS/Mike Segar

A deal to deposit $30 billion into First Republic Bank (FRC.N), announced on Thursday was put together by top power brokers from the U.S. Treasury, Federal Reserve and banks including JPMorgan Chase & Co. after a steep decline in the lender’s shares.

The planned rescue package was discussed by Treasury Secretary Janet Yellen, Federal Reserve Chairman Jerome Powell and JPMorgan Chase & Co. (JPM.N) CEO Jamie Dimon on Tuesday, according to a source familiar with the situation. Citigroup Inc’s (C.N) CEO Jane Fraser also reached out to large banks to recruit them to join the rescue effort, two sources familiar with the matter said.

The prominent figures involved underscore the gravity of the situation in the regional U.S. banking sector, hit by the collapse of SVB Financial (SIVB.O) on Friday and the shuttering down of Signature Bank (SBNY.O) on Sunday.

A central player in the deal was Rodgin Cohen, a veteran lawyer at Sullivan & Cromwell, two sources familiar with the matter said. Sullivan & Cromwell did not immediately respond to a request for comment.

The deal saw large lenders such as JPMorgan Chase & Co (JPM.N), Citigroup Inc (C.N), Bank of America Corp (BAC.N), Wells Fargo & Co (WFC.N) make an uninsured deposit of $5 billion each into the bank.

The Fed did not immediately respond to a request for comment.

The banks will keep the funds at the lender for an initial term of at least 120 days, First Republic said in a statement adding that it had cash position of about $34 billion, excluding the $30 billion.

The collapse of SVB Financial (SIVB.O) on Friday and the shuttering of Signature Bank (SBNY.O) on Sunday, the second and third largest bank failures in U.S. history, respectively, have hammered bank stocks as investors lost confidence in the sector.

It also ignited questions about the survival of some smaller and regional banks.

“America benefits from a healthy and functioning financial system, and banks of all sizes are critical to our economy,” Citi said in a statement underscoring the importance of mid-size and community banks.

Goldman Sachs Group Inc (GS.N), Morgan Stanley (MS.N) have also pumped in $2.5 billion each. Other lenders including BNY Mellon, PNC Bank, State Street, Truist and U.S. Bank channeled $1 billion of deposits into the San Francisco-based lender.

First Republic’s shares have lost over two-thirds of their value in the past seven days and are down more than 72% month-to-date.

The rescue effort was initiated by banks but had strong backing and encouragement from the government, according to a person with knowledge of the matter.

“This show of support by a group of large banks is most welcome, and demonstrates the resilience of the banking system,” regulators said in a joint statement soon after the announcement.

Federal Reserve Board Chair Jerome Powell said the Fed was always ready to provide liquidity through its discount window.

First Republic’s shares closed up 10% at $34.38 on Thursday, ending a day of volatile trading which saw the stock tumbling 36% earlier in the day before reports of the rescue plan sent them up as much as 40%. After the close of trading on Thursday, the bank’s shares tumbled 20%.

A round of financing on Sunday raised through JPMorgan Chase & Co (JPM.N), gave First Republic access to a total of $70 billion in funds, but failed to calm investors as worries of a contagion deepened in the wake of two large-scale collapses in the banking industry.

Founded in 1985, First Republic had $212 billion in assets and $176.4 billion in deposits as of the end of last year, according to its annual report.

About 70% of its deposits are uninsured, above the median of 55% for medium-sized banks and the third highest in the group after Silicon Valley Bank and Signature Bank, according to a Bank of America note.

Earlier on Thursday, Reuters reported PacWest Corp (PACW.O) is also in talks about a liquidity boost with investment firm Atlas SP Partners.

Bloomberg News reported earlier on the rescue package and its participants.

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