A US$30 billion lifeline for First Republic Bank on Thursday hosed down market fears about an imminent banking collapse, but a late tumble in the troubled US lender’s shares showed investors were still worried about cracks in the sector.
Large US banks injected the funds into the San Francisco-based bank, swooping in to rescue the lender caught up in a widening crisis triggered by the collapse of two other mid-sized US lenders over the past week.
The deal was put together by top power brokers, including US Secretary of the Treasury Janet Yellen, US Federal Reserve Chair Jerome Powell and JPMorgan Chase chief executive officer Jamie Dimon, who had discussed the package this week, a source familiar with the situation said.
Photo: AFP
The package came less than a day after Swiss bank Credit Suisse clinched an emergency central bank loan of up to US$54 billion to shore up its liquidity.
Those deals helped restore calm to global markets on Thursday and yesterday, following a torrid week for banking stocks.
However, while First Republic’s stock closed up 10 percent on news of the rescue, its shares fell 18 percent in after-market trading after the bank said it would suspend its dividend, and disclosed its cash position and just how much emergency liquidity it needed.
Analysts say authorities appear eager to quickly deal with systemic risks, but worry the potential for a banking crisis is far from over.
“They will keep the money in First Republic to keep it alive for self-interest ... to stop the run on banks. Then they will take it away gradually and the bank will play out a slow death,” said Mathan Somasundaram, founder of research firm Deep Data Analytics in Sydney.
“Yellen was clear overnight that all bank deposits were protected, but the bank might not be there,” he said.
Some of the biggest US banking names — including JPMorgan Chase & Co, Citigroup Inc, Bank of America Corp, Wells Fargo & Co, Goldman Sachs and Morgan Stanley — were involved in the rescue, a statement from the banks said.
While the support has prevented an imminent collapse, investors were startled by late disclosures about First Republic’s cash position, even after the injection, and just how much it and others leaned on the Fed this month for support.
Data on Thursday showed banks in the US sought record amounts of emergency liquidity from the Fed in recent days, driving up the size of the central bank’s balance sheet after months of contraction.
More broadly, worries about contagion risks persist.
“I don’t think we are in the crux of a global financial crisis. Balance sheets are much better than they were in 2008, banks are better regulated,” said Karen Jorritsma, head of Australian equities at RBC Capital Markets. “But people are concerned that the contagion risk is real, and that rattles confidence.”
For now, authorities are confident the banking system is resilient and have tried to emphasize that the current turmoil is different to the global financial crisis 15 years ago, as banks are better capitalized and funds more easily available.
On Thursday, the European Central Bank pressed forward with a 50-basis-point rate hike, saying that eurozone banks were in good shape and that, if anything, the move to higher rates should bolster their margins.
Focus now swings to the Fed’s policy decision next week and whether it would stick with its aggressive interest rate hikes as it seeks to get inflation under control.
In Asia, Singapore, Australia and New Zealand said they were monitoring financial markets, but were confident their local banks were well capitalized and able to withstand major shocks.
TARIFF TRADE-OFF: Machinery exports to China dropped after Beijing ended its tariff reductions in June, while potential new tariffs fueled ‘front-loaded’ orders to the US The nation’s machinery exports to the US amounted to US$7.19 billion last year, surpassing the US$6.86 billion to China to become the largest export destination for the local machinery industry, the Taiwan Association of Machinery Industry (TAMI, 台灣機械公會) said in a report on Jan. 10. It came as some manufacturers brought forward or “front-loaded” US-bound shipments as required by customers ahead of potential tariffs imposed by the new US administration, the association said. During his campaign, US president-elect Donald Trump threatened tariffs of as high as 60 percent on Chinese goods and 10 percent to 20 percent on imports from other countries.
Taiwanese manufacturers have a chance to play a key role in the humanoid robot supply chain, Tongtai Machine and Tool Co (東台精機) chairman Yen Jui-hsiung (嚴瑞雄) said yesterday. That is because Taiwanese companies are capable of making key parts needed for humanoid robots to move, such as harmonic drives and planetary gearboxes, Yen said. This ability to produce these key elements could help Taiwanese manufacturers “become part of the US supply chain,” he added. Yen made the remarks a day after Nvidia Corp cofounder and chief executive officer Jensen Huang (黃仁勳) said his company and Taiwan Semiconductor Manufacturing Co (TSMC, 台積電) are jointly
United Microelectronics Corp (UMC, 聯電) expects its addressable market to grow by a low single-digit percentage this year, lower than the overall foundry industry’s 15 percent expansion and the global semiconductor industry’s 10 percent growth, the contract chipmaker said yesterday after reporting the worst profit in four-and-a-half years in the fourth quarter of last year. Growth would be fueled by demand for artificial intelligence (AI) servers, a moderate recovery in consumer electronics and an increase in semiconductor content, UMC said. “UMC’s goal is to outgrow our addressable market while maintaining our structural profitability,” UMC copresident Jason Wang (王石) told an online earnings
MARKET SHIFTS: Exports to the US soared more than 120 percent to almost one quarter, while ASEAN has steadily increased to 18.5 percent on rising tech sales The proportion of Taiwan’s exports directed to China, including Hong Kong, declined by more than 12 percentage points last year compared with its peak in 2020, the Ministry of Finance said on Thursday last week. The decrease reflects the ongoing restructuring of global supply chains, driven by escalating trade tensions between Beijing and Washington. Data compiled by the ministry showed China and Hong Kong accounted for 31.7 percent of Taiwan’s total outbound sales last year, a drop of 12.2 percentage points from a high of 43.9 percent in 2020. In addition to increasing trade conflicts between China and the US, the ministry said
RSS