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 First Republic's shares, according to sources.
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 earlier this week, two sources familiar with the situation said.
Citigroup Inc's (C.N) CEO Jane Fraser also reached out to large banks to recruit them to join the rescue effort, two other 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 shutdown of Signature Bank (SBNY.O) on Sunday, the second and third largest bank failures in U.S. history, respectively.
A central player in the deal was Rodgin Cohen, a veteran lawyer at Sullivan & Cromwell, two of the 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, Bank of America Corp (BAC.N) Citigroup and Wells Fargo & Co (WFC.N) make uninsured deposits 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 package. The company also suspended its dividend, it said in a filing.
SVB's downfall has hammered bank stocks and diminished confidence in some regional and smaller lenders, in some cases igniting questions about their survival.
"America benefits from a healthy and functioning financial system, and banks of all sizes are critical to our economy," Citigroup said in a statement, underscoring the importance of mid-size and community banks.
Goldman Sachs Group Inc (GS.N), Morgan Stanley (MS.N) also agreed to pump in $2.5 billion each into First Republic. Other lenders including BNY Mellon (BK.N), PNC Financial Services Group (PNC.N), State Street Corp (STT.N), Truist Financial Corp (TFC.N) and U.S. Bancorp (USB.N) channeled $1 billion of deposits into the San Francisco-based lender.
First Republic's shares closed 10% higher at $34.27 on Thursday, ending a volatile day which saw its trading halted 17 times. It tumbled 36% earlier in the day, then jumped 40% on reports of the rescue plan, and later slumped 19% after Thursday's close.
"The stock performance is reflective of volatility and uncertainty which is going to take some time to go away," said Stephen Biggar, director of financial services research at Argus Research.
The private-sector rescue effort was arranged with the government's backing, according two people 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.
Powell said the Fed was always ready to provide liquidity through its discount window.
The rescue plan was a "sly vote of confidence in the contributing banks" from regulators, said Chris Kotowski, an analyst at Oppenheimer Research. "If the regulators were seriously concerned about the viability of FRC even with the emergency funding package, they would not want to saddle these banks with additional losses given the shattered state of market confidence."
A round of financing on Sunday raised through JPMorgan gave First Republic access to a total of $70 billion in funds, but failed to calm investors as worries of a contagion deepened.
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.