Bill Ackman has slated a $30 billion rescue package for First Republic Bank (FRB), saying it risks spreading the bank’s default risk to the biggest banks in the United States.
The billionaire investor and hedge fund manager asserted that Treasury Secretary Janet Yellen ‘apparently’ pushed the US’s biggest, systemically-important banks to recycle some of the deposits they received from FRB back into the bank for 120 days.
The result, he said, is that FRB default risk is now being spread to the country’s largest banks.
“Spreading the risk of financial contagion to achieve a false sense of confidence in FRB is bad policy,” the billionaire investor and hedge fund manager said in a Tweet. “The SIBs would never have made this low return investment in deposits unless they were pressured to do so and without assurances that FRB deposits would be backstopped if it failed.”
.@SecYellen has apparently pushed the SIBs to recycle some of the deposits they received from @firstrepublic back into FRB for 120 days. The result is that FRB default risk is now being spread to our largest banks.
Spreading the risk of financial contagion to achieve a false… https://t.co/rDwQophwly
— Bill Ackman (@BillAckman) March 17, 2023
A group of 11 financial institutions, including tier-1 banks Bank of America, Citigroup, JPMorgan Chase, Wells Fargo, Goldman Sachs (NYSE:GS) (Goldman Sachs (NYSE:GS)) and Morgan Stanley (NYSE:MS) (Morgan Stanley (NYSE:MS)), stepped in and deposited $30 billion at embattled First Republic Bank on Thursday, saying in a statement that regional, midsize and small banks are critical to the health and functioning of the financial system.
“Following the receiverships of Silicon Valley Bank and Signature Bank, there were outflows of uninsured deposits at a small number of banks,” the banks said in the statement. “America’s financial system is among the best in the world, and America’s banks – large, midsize and community banks – do an extraordinary job serving the banking needs of their unique customers and communities.”
Ackman disagrees: “FRB is no SVB. It is a well-managed, well-capitalized, high-service bank with good assets that is beloved by its clients. It is caught up in a bank run due to no fault of its own. It does not deserve to fail.”
“The press release announcing the $30B of deposits raised more questions than it answers,” Ackerman wrote. “Lack of transparency causes market participants to assume the worst.”
Ackman clarified that he has no investment long or short in the banking sector but is simply extremely concerned about financial contagion risk spiraling out of control and causing severe economic damage and hardship.
“We need to stop this now,” he said. “We are beyond the point where the private sector can solve the problem and are in the hands of our government and regulators. Tick-tock.”
Contact the author at stephen.gunnion@proactiveinvestors.com