We made it to Friday.
But it’s a tough week to be a bank. Specifically, a regional bank, it seems. Silicon Valley Bank failed last Friday and, under new management, has been pleading with depositors to bring their money back. But as we’ve seen percolating for several days, regional bank First Republic, which is also a provider to startups, is under pressure, announcing on Thursday afternoon that the bank is getting a rescue influx of deposits from eleven top banks, orchestrated by the U.S. government, to try to stem contagion.
A cohort including JPMorgan Chase, Citigroup, Bank of America, Wells Fargo, Morgan Stanley, PNC, and Truist, agreed to put $30 billion worth of uninsured deposits into First Republic in an effort to shore up the bank. First Republic’s stock has taken a massive beating this week, and some have been speculating it’d be the next domino to fall in the messy aftermath of SVB’s failure. As we’ve been reporting, in situations like these, it doesn’t matter as much if the bank’s financials are strong or not—what matters is customers’ perception of that security.
Regulators are trying to reassure depositors that, in the words of Treasury Secretary Janet Yellen on Thursday, the banking system remains "sound.” But one bank analyst told me that this rescue plan for First Republic doesn’t mean things are all dandy: “It's definitely a sign that they're struggling with deposit flight, otherwise that wouldn't have been necessary,” Eric Compton, a strategist at Morningstar who covers First Republic and other banks like JPMorgan, told me Thursday afternoon (in a press release, First Republic said that "daily deposit outflows have slowed considerably"). “It solves, like, the short-term liquidity problem, but at the end of the day, JPMorgan Chase” isn’t going to replace customers taking out mortgages and using wealth products, he says. “So to the extent that those clients take their lending and/or wealth business elsewhere, or don't come back, it's a worrying sign.” (And interestingly, First Republic’s CEO was reportedly asking regulators less than two months ago to exclude the bank from proposed new rules, per The Information.)
But a couple of VCs I talked to Thursday afternoon had a different initial take: “Seems like a very strong sign. Good for them,” one venture investor told me, who acknowledged that it would make them feel more confident keeping money at the bank. They noted that “that group [of banks] is the ‘smart money’ in banking and does not like to lose money.” Another VC told me that it’s “too early to see whether [this] calms fears but clever move for now,” adding that “founders are pretty confused at [the] moment as down is up and up is down.”
Sarah Kunst, managing director of pre-seed VC firm Cleo Capital, told me that she thinks the joint bank announcement “certainly is helpful to calm fears among investors, and I think that founders are largely taking their cues from what their investors are saying.” She says some of their portfolio companies have banked or currently bank with First Republic, and added that it’s “good” for founders to diversify who they bank with. “A lot of people had already started that diversification process over the last week just because of the uncertainty.”
It’s important to note that San Francisco-based First Republic wasn’t quite as heavily skewed toward tech startups as SVB was: The bank said in a recent filing that no one sector makes up more than 9% of their total business deposits, with tech making up 4%, though they are known for their wealthy clientele. However, founders were, often at the behest of their investors, moving money to First Republic and other banks in the wake of SVB’s troubles.
The key question here is if this will be enough to restore confidence among customers. After all, we saw First Republic announce additional financing from JPMorgan Chase on Sunday, basically shoring up its liquidity in case it needed it, but that seemingly didn’t do much to assuage fears. As Compton noted, “It's one of those things where the only way it really works is if you actually never have to use it. It's all about just trying to change the perception in the marketplace and change the psychology of depositors.” What's more, First Republic revealed on Thursday that the bank borrowed as much as $109 billion between March 10 to 15 from the Federal Reserve.
Compton believes, “It all comes down to if clients actually return to the bank and stick with it. If that happens, yeah, there are realistic scenarios where First Republic is fine,” but, of course, on the flip side, there’s a world where “the damage to the brand and just the psychology of the client has changed enough where they just don't want to deal with it.”
The situation is clearly still tenuous. And I truly hope—for the sake, first and foremost, of the customers and the broader ecosystem, and, secondarily, for my sanity—that I won’t have to write about any more bank failures anytime soon.
On deadline: It’s not just me. Would-be buyers of failed banks Silicon Valley Bank and Signature Bank, or parts of them, must get their bids in by Friday. Keep a close eye on that today.
Since it’s Friday, and the end of a long year—er, week—below is a roundup of a few worthy reads.
‘What happens to all the debt?’ Founders and VCs have a host of questions about the fate of Silicon Valley Bank’s venture loans—by Anne Sraders (Fortune)
Goldman looked to buy SVB in 2020 but talks fizzled—by Liz Hoffman (Semafor)
FDIC wants buyer of Signature Bank to give up crypto business, report says—by Leo Schwartz (Fortune)
ICYMI—Stripe’s down round: On Wednesday, payments titan Stripe officially locked in a big down round, raising more than $6.5 billion at a $50 billion valuation—a mighty haircut from its 2021 valuation of $95 billion, and a lower valuation than was previously discussed for this fundraise, per reports. The company has said all along that this cash isn’t needed to support its business operations, but will be used to cover employees’ tax obligations related to expiring equity rewards and provide liquidity to current and former employees. Stripe had toyed with the idea of going public, but opted for the private raise instead. Some new investors hopped on board in this latest fundraise, too, including GIC and Temasek.
Have a great weekend,
Anne Sraders
Twitter: @AnneSraders
Email: anne.sraders@fortune.com
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Jackson Fordyce curated the deals section of today’s newsletter.
