First Republic Lifeline
The US30 closed higher yesterday as a syndicate of banks threw First Republic a lifeline. Four major US banks, Bank of America, Citigroup, JPMorgan Chase, and Wells Fargo, will each make a $5 billion uninsured deposit into First Republic Bank as part of a $30 billion backstop by 11 banks to support the banking industry. First Republic's stock fell by 14.7% in after-hours trading after the bank disclosed that it would suspend its dividend to conserve cash. The bank currently holds $34 billion in cash, excluding the additional $30 billion in uninsured deposits from the 11 banks.
Additionally, First Republic disclosed that it borrowed between $20 billion and $109 billion at an overnight rate of 4.75% from the Federal Reserve between March 10 and March 15. The bank's board of directors has determined to suspend its common stock dividend as part of its focus on reducing borrowings and evaluating the composition and size of its balance sheet going forward. The 11 banks making the uninsured deposits stated in a joint statement that their move "reflects their confidence in First Republic and in banks of all sizes," and "demonstrates their overall commitment to helping banks serve their customers and communities."
US30 Technical Analysis
The US30 weekly chart has charted a lower peak followed by a lower trough. This puts the index into downtrend. Its RSI, a momentum-based indicator, has dropped to the bearish side of 50 (green rectangle). The longer it maintains this side, the more pressure will be applied to the US30.
This week's price action is encouraging though. The index was sold sown as fears over the banking sector grew. However, the jitters are dissipating, and the bears lost control to bulls. Subsequently the bulls have taken the index up for the week and remain in control for now.
Senior Market Specialist
Russell Shor joined FXCM in October 2017 as a Senior Market Specialist. He is a certified FMVA® and has an Honours Degree in Economics from the University of South Africa. Russell is a full member of the Society of Technical Analysts in the United Kingdom. With over 20 years of financial markets experience, his analysis is of a high standard and quality.