Analysts At Wall Street Say A $30 Billion Lifeline To The First Republic Should Dampen Future Collapses

A major bank's decision on Thursday to extend a lifeline to First Republic following a difficult week, Wall Street predicts the move will help to restore confidence in the sector after a week of difficulties for financial institutions.

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Among the leading players in the banking industry, including Bank of America, Citigroup, JPMorgan Chase, Morgan Stanley, and Citigroup Global Markets, a group of 11 prominent players pledged to lead an effort to save First Republic by injecting $30 billion worth of deposits into the company.

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John Pancari, the chairman of Evercore ISI, wrote in his note on Thursday that the move by the industry is an important step in containing contagion during the regional bank crisis. As a result, we feel the bank is able to fight another day and sends a message of broader stability to the sector.

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There has been a drastic drop of 58% in the value of First Republic's shares this week, following the failure of Silicon Valley Bank, which triggered a massive selloff among regional bank stocks, and a panicked flight from deposits from customers. The drop came on top of a drop of roughly 34% last week, which was a more than welcome one.

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During an interview with Reuters, Goldman Sachs analyst Ryan Nash referred to the $30 billion rescue plan as "creating an industry solution" that would reduce the likelihood of future bank runs, slow outflows of deposits, and lessen the need to call on the government to step in.

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“It provides a much-needed liquidity infusion for the company to address near-term deposit outflows in an orderly manner, even though it is unclear if this is a long-term solution and earnings are likely to have a material impact in the near term,” he wrote in a Thursday report.

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Despite the fact that Wall Street analysts view the move as a sign of confidence in the banking industry as a whole, rather than just a temporary resolution to First Republic's problems, the move may simply be a temporary solution to its problems, and will not tell when deposits will start to ramp up again.

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Vivek Juneja, an analyst at JPMorgan, wrote in a note on Friday, "This proves our banks' position is solid, including our regionals, and they are gaining some deposits." It appears our banks outside of this consortium will also hold up well, and we may see some infusions from them."

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Despite First Republic's short-term liquidity problems, the industry views the company as worth saving, writes Oppenheimer's Chris Kotowski on Thursday.

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The move is also a sly vote of confidence for the banks that contributed. In light of the shattered state of market confidence, regulators would not want to impose additional losses on these banks if they were seriously concerned about FRC's viability, even with the emergency funding package.