US government evaluates First Republic rescue plan – 03/16/2023 – Market

In the midst of the banking crisis that hit the global markets with the collapse of SVB (Silicon Valley Bank) in the United States last week, and the financial difficulties of Credit Suisse in Europe, one more bank is beginning to draw the attention of investors.

The ball of the moment is First Republic Bank, a medium-sized bank founded in 1985 in San Francisco, in the United States.

The bank’s shares operated in a sharp fall this Thursday (16), with a devaluation of over 20%, continuing the downward trajectory already registered over the last few days. Since closing on March 8, shares have already fallen by around 80%.

According to reports from international agencies, the US government has held talks with large banks such as JP Morgan, Citigroup, Bank of America and Morgan Stanley, to prepare a rescue plan for the First Republic, which would be in a weakened situation with the increase in risk aversion among investors, fearful of the risk of contagion more widely in the financial sector in the wake of the problems involving SVB and Credit Suisse.

According to a report in The Wall Street Journal, the ongoing discussions would involve a potential capital increase to capitalize First Republic, which was traded with a market value of around US$ 5 billion on the New York Stock Exchange. The sale of the bank would also be an option under discussion.

At the end of December last year, First Republic had approximately US$ 210 billion (R$ 1.1 trillion) in total assets, with 80 offices in seven US states.

The newspaper reports that customers have withdrawn billions of dollars in First Republic deposits in recent days, with the bank already on Sunday announcing an agreement with the Federal Reserve (Fed, US central bank) and JP Morgan to access a credit of US$ 70 billion (R$ 370 billion).

Despite efforts, on Wednesday (15) the risk rating agency downgraded First Republic’s ratings from A- to BB+

Bloomberg already indicated that details about the rescue plan, which needs to be approved by regulatory bodies, could be announced later on Thursday.

Since last Friday (9), agents of the global financial market have adopted a cautious tone, after the bankruptcy of SVB, a bank focused on the startup sector that was hard hit by the increase in interest rates by the Fed, which caused billionaire losses for the portfolio allocated to long-term US government bonds.

The collapse of the SVB raised tensions in relation to the other regional banks in the United States, which have limited capacity to deal with an adverse macroeconomic scenario with the increase in interest rates by the North American Central Bank.

This week, it was the turn of the giant Credit Suisse, the second largest bank in Switzerland, to enter the radar of investors, after the bank disclosed distortions in the balance sheet and the need for a billionaire injection of capital.

Despite the delicate situation of Credit Suisse, its shares have a session of strong price recovery this Thursday, after the central bank of Switzerland offered financial support to re-establish the bank’s operations.