After almost a week of turmoil, the banking world finally has some good news. First Republic Bank (NYSE:FRC) has been struggling since the collapse of SVB Financial’s (NASDAQ:SIVB) principal subsidiary, Silicon Valley Bank, last week. As the government seized control of the troubled company, several of its peers saw trading of their shares halted, First Republic being among them. Since then, FRC stock has been in a race to the bottom as investor confidence in the sector falters.
FRC started today by plunging into the red along with plenty of other bank stocks. However, it has since rebounded — and for good reason. A deal is now in progress to help keep the bank afloat throughout this turbulent time.
What exactly does this new deal consist of and what should investors be looking out for as it moves forward? Let’s dive into the details and assess what’s on the table for First Republic.
A New Deal for Bank Stocks
According to sources who have spoken to CNBC, several banks have pledged to provide First Republic with a collective sum of $30 billion to avoid an acquisition of the bank being necessary. News of the deal sent bank stocks up after a difficult morning today. FRC stock itself closed up by more than 10% for the day.
Which banks will take part in the $30 billion package? Apparently, Bank of America (NYSE:BAC), Wells Fargo (NYSE:WFC), Citigroup (NYSE:C) and JPMorgan (NYSE:JPM) will contribute roughly $5 billion each. Meanwhile, Goldman Sachs (NYSE:GS) and Morgan Stanley (NYSE:MS) will both add around $2.5 billion. The remaining funds will come from Truist Financial (NYSE:TFC), PNC (NYSE:PNC), U.S. Bancorp (NYSE:USB), State Street (NYSE:STT) and Bank of New York Mellon (NYSE:BK), all of which will contribute $1 billion apiece.
After losing more than 50% of its value in just five days amid downgrades, FRC stock desperately needs a positive catalyst. Speculation has mounted that it could be the next bank to collapse. However, if this deal goes through, First Republic will likely be safe for the time being. Per CNBC:
“The bank had said Sunday that it had more than $70 billion in availability liquidity, not counting additional funds it could possibly raise from the Federal Reserve’s Bank Term Funding Program, but that was not enough to keep investors from dumping the stock […] The deposits from the larger banks will add to that liquidity.”
What Comes Next?
No bank has been immune to the turbulence that has been shaking this sector recently. The Wall Street Journal reports that JPMorgan, Citigroup, Wells Fargo and Bank of America have collectively shed $91 billion in value since the SVB meltdown.
As the selloff drags on, it’s hard to feel confident that the banking sector will bounce back quickly. However, the rest of Wall Street stepping in to make sure First Republic doesn’t go down may be the first step in a long road to recovery. Until the deal is done and finalized, though, investors should proceed with caution.
On the date of publication, Samuel O’Brient did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
