WFC - Big Banks To The Rescue
2023-03-18 09:33:00 ET
Summary
- In a simple and elegant way, the large banks may have found a way to restore confidence in the U.S. banking system.
- In total, the banks will deposit $30 billion in First Republic, with an initial term of 120 days at prevailing market rates.
- The banks are finding strength in numbers and are supporting an institution that has seen significant deposit flight.
By Andrew C. Arbesman, CFA, CPA
In a simple and elegant way, the large banks may have found a way to restore confidence in the U.S. banking system.
Yesterday, 11 large financial institutions deposited $30 billion into the beleaguered First Republic ( FRC ), in what might be a simple and elegant way to help resolve the crisis of confidence in the U.S. banking system.
Bank of America (BAC), Citigroup ( C ), JPMorgan ( JPM ) and Wells Fargo ( WFC ) announced that they would each contribute a $5 billion uninsured deposit into First Republic. Goldman Sachs ( GS ) and Morgan Stanley (MS) will each make an uninsured deposit of $2.5 billion, and Bank of New York, PNC Financial ( PNC ), State Street ( STT ), Truist Financial (TFC) and U.S. Bancorp ( USB ) will each make an uninsured deposit of $1 billion. In total, the banks will deposit $30 billion in First Republic, with an initial term of 120 days at prevailing market rates.
The decisive action of the large banks accomplished several things. First, it strengthened First Republic’s liquidity position in a quick and nondilutive manner. Second, the deposit suggested that the largest banks conducted enough due diligence to conclude that First Republic can operate as a going concern, hopefully making corporate depositors think, “If it’s good enough for JPMorgan, it’s good enough for me.” Third, the deposit restored some confidence in the health of the banking system without government assistance. This is significant since it not only shows that the banking system can find alternative ways to support itself, but also provides additional flexibility to the regulators should they need to intervene at a later date.
In essence, many of the deposits that left First Republic are going right back to it from the largest banks. The banks are finding strength in numbers and are supporting an institution that has seen significant deposit flight. If this ultimately quells market fears, it will be seen as an effective way to redistribute deposits and serve as a model that can hopefully assist other deserving financial institutions in a time of crisis. While market volatility may continue, the large deposit placed into First Republic, along with the establishment of the Bank Term Funding Program, should help ease fears about the U.S. banking system.
This material is provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice. This material is general in nature and is not directed to any category of investors and should not be regarded as individualized, a recommendation, investment advice or a suggestion to engage in or refrain from any investment-related course of action. Investment decisions and the appropriateness of this material should be made based on an investor's individual objectives and circumstances and in consultation with his or her advisors. Information is obtained from sources deemed reliable, but there is no representation or warranty as to its accuracy, completeness or reliability. All information is current as of the date of this material and is subject to change without notice. The firm, its employees and advisory accounts may hold positions of any companies discussed. Any views or opinions expressed may not reflect those of the firm as a whole. Neuberger Berman products and services may not be available in all jurisdictions or to all client types. This material may include estimates, outlooks, projections and other “forward-looking statements.” Due to a variety of factors, actual events or market behavior may differ significantly from any views expressed.
Investing entails risks, including possible loss of principal. Investments in hedge funds and private equity are speculative and involve a higher degree of risk than more traditional investments. Investments in hedge funds and private equity are intended for sophisticated investors only. Indexes are unmanaged and are not available for direct investment. Past performance is no guarantee of future results.
This material is being issued on a limited basis through various global subsidiaries and affiliates of Neuberger Berman Group LLC. Please visit www.nb.com/disclosure-global-communications for the specific entities and jurisdictional limitations and restrictions.
The “Neuberger Berman” name and logo are registered service marks of Neuberger Berman Group LLC.
© 2009-2023 Neuberger Berman Group LLC. All rights reserved.
Editor's Note: The summary bullets for this article were chosen by Seeking Alpha editors.
For further details see:
Big Banks To The Rescue