What’s going on with First Republic Bank?

But on Friday, First Republic shares fell again, plunging more than 30% and leaving analysts wondering whether it has a future as an independent bank.

What happened to First Republic Bank?

First Republic was one of the banks to be swept up in the contagion that followed Silicon Valley Bank’s failure on March 10, due to some similarities, including its size, largely wealthy customer base, and largely undeveloped nature. secure their deposit bases.

Why does First Republic Bank need deposits?

Like many regional US banks in the past week, First Republic has faced concerns that its account holders will leave, reflecting concerns surrounding its apparent resemblance to Silicon Valley Bank.

Silicon Valley Bank failed because its core venture banking business and its startups were bleeding funds, creating an ongoing need for cash. But the company had invested heavily in long-term bonds, whose value was badly hurt by the Federal Reserve’s interest rate hikes last year, meaning it could only sell them at a loss.

When Silicon Valley Bank tried to raise money anyway, its account holders, mostly business customers whose accounts were well over the Federal Deposit Insurance Corp.’s $250,000 protection limit, fled to other banks. Uninsured depositors across the system took notice and First Republic, which had about two-thirds of its deposits in uninsured accounts, came under scrutiny.

How does the First Republic Bank bailout work?

JPMorgan, Citigroup Inc., Bank of America Corp. and Wells Fargo & Co. are making a $5 billion unsecured deposit with First Republic. Morgan Stanley and Goldman Sachs Group Inc. are contributing $2.5 billion each, while five other banks are contributing $1 billion each. The measure aims, in part, at restoring confidence in regional banks by showing that the biggest companies are willing to put their money to work there.

The situation is reminiscent of the drama of the banking system in the financial crisis of 2008, when JPMorgan bought Bear Stearns and later Washington Mutual..

“This show of support from a group of major banks is most welcome and demonstrates the resilience of the banking system,” said a group of US regulators led by Treasury Secretary Janet Yellen.

How was the First Republic Bank rescue plan decided upon?

Bank executives have met in recent days to formulate the plan, discussing it with Yellen and other officials and regulators in Washington, the Journal reported.

Big banks received an influx of billions in deposits from midsize lenders, including First Republic, last week after the collapse of Silicon Valley Bank and Signature Bank. JPMorgan and the others are now effectively returning some of the money they raised.

Are First Republic Bank’s troubles over?

It doesn’t seem like that. Equities rose on Thursday afternoon, but the scale of the rally lessened somewhat throughout the afternoon, suggesting there may be some doubts that it will have the desired effect on broader depositor sentiment. On Friday, the bank said it was suspending its dividend; stocks fell further.

Other banking sector problems also remain potentially unresolved. Credit Suisse Group AG

Shares rose in Zurich on Thursday, a day after the Swiss giant agreed to borrow 50 billion Swiss francs, equivalent to $53.7 billion, from the Swiss National Bank to ease its own crisis, but it is unclear whether a larger unrest in Europe is at hand. . Shares in Credit Suisse turned and fell on Friday, and on Saturday talks were underway for it to be acquired by its biggest rival, UBS Group.

And First Republic Bank top executives sold millions of dollars worth of company stock in the two months before the bank’s stock plunged during the panic over the health of regional creditors, the Journal reported, a fact that will not sit well with many people, regardless. of how the rescue effort unfolds.

Illustration: Jacob Reynolds

Write to Colin Barr at colin.barr@wsj.com

Fixes and Amplifications
Shares in Credit Suisse Group AG rose in Zurich. An earlier version of this article incorrectly referred to the bank as Credit Suisse Group Inc.

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