First Republic, a troubled bank, is moving higher today as CEO of JPMorgan Chase, a universal bank, Jamie Dimon, directs strategic preparations to prevent total failure. At the time of the most recent check on Tuesday, JPMorgan is up approximately 2% and FRC stock is up almost 15%.
In order to come up with the best strategy for FRC “stabilization,” Dimon is consulting with the other 10 major banks that have contributed $30 billion to the company. Restoring investor and depositor confidence in the First Republic is currently the most crucial aspect of damage management, as doing so will increase confidence in the banking sector as a whole. These initiatives are all geared on reducing systemic risk to the economy.
One of the initial topics of discussion is adding new capital to the bank to increase its capital base. Also being discussed is turning some of the $30 billion into equity. Selling the bank to a bigger, more capitalized bank is an additional alternative. Investment bankers from JPMorgan will also be used to advise FRC. By acquiring regional bank Washington Mutual and bankrupt investment banker Bear Sterns, Dimon-led JPM significantly contributed to the 2008 financial catastrophe.Previously, FRC warned that $30 billion would only be sufficient to cover its immediate liquidity requirements. In addition, to address their significant deposit outflow issues, the FRC has borrowed billions of dollars from the Federal Reserve and the Federal Home Loan Bank. To make matters worse, S&P
As the Dimon-led committee develops potential alternatives to salvage First Republic Bank, there is yet hope for the institution. The price of FRC stock has decreased by 90% just this month. As in the case of UBS’s acquisition of Credit Suisse, authorities are also pressing big banks to assist smaller banks in order to prevent a financial disaster.