Monday, 27 March 2023

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The ‘three Js’ who put together a rescue deal for First Republic

The ‘three Js’ who put together a rescue deal for First Republic

When a package of emergency measures following the failure of Silicon Valley Bank failed to stop the plunge in US regional banking stocks this week, Washington’s officials turned to Jamie Dimon, the last remaining veteran of the 2008 banking crisis still heading a large lender.

Over multiple phone calls on Tuesday, US Treasury secretary Janet Yellen, Federal Reserve chair Jay Powell and JPMorgan Chase’s Dimon discussed the idea of bringing the nation’s biggest lenders together to help bolster confidence in the financial system, several people with knowledge of the conversations told the Financial Times.

The shares of First Republic, a California bank with some similarities to SVB, had been hit particularly hard amid fears that it would be forced to sell its mortgage portfolio at a steep loss to cover deposit outflows.

The “three Js”, drawing on advice from longtime banking lawyer Rodgin Cohen of Sullivan & Cromwell tossed around the idea of shoring up First Republic with additional deposits, reducing the likelihood of a fire sale.

Dimon, the chief executive of JPMorgan Chase, which is an adviser to First Republic, enlisted his bankers to drum up support. By Wednesday morning, the nation’s three other largest lenders, Bank of America, Wells Fargo and Citigroup were on board. More video and phone calls followed, including a call involving close to a dozen chief executives, Yellen and top banking regulators. While JPMorgan bankers did the initial outreach, most of the conversations were chief executive to chief executive.

Dimon and Yellen then met in person in her Washington office to go over the details before a group of 11 banks announced on Thursday they had agreed to deposit $30bn into the beleaguered lender.

People party to the conversations or briefed on them insisted that regulators neither twisted arms nor made special promises to bring banks on board.

The deposits are receiving interest at the market rate and are too large to be covered by the Federal Deposit Insurance Corporation. That means the banks would be at risk of losing the money if First Republic failed, unless, as occurred in the case of SVB, federal regulators declare it to be systemically important.

“The officials were supportive and wanted it to work, but . . . we are not getting anything special,” an industry person briefed on the talks said. “We did not get a wink and a nod.”

“The government was well aware but this [plan] was created outside of…

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