First Republic Bank rescue creates a ‘false sense of confidence,’ says hedge fund investor
Brady Knox
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Billionaire investor Bill Ackman criticized the recent bailout of First Republic Bank, saying that it creates a “false sense of confidence.”
Ackman, CEO of hedge fund Pershing Square Capital Management, bashed the plan by 11 major United States banks to pour $30 billion into FRB, further taking issue with Treasury Secretary Janet Yellen’s call for Wall Street banks to “recycle” the deposits they received from FRB back into it.
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“Spreading the risk of financial contagion to achieve a false sense of confidence in FRB is bad policy. 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,” Ackman said in a tweet on Friday.
“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,” he continued. “We need a temporary systemwide deposit guarantee immediately until expanded and modernized @FDICgov insurance system is made widely available.”
He also criticized a “lack of transparency” over the deal, warning that the $30 billion aid package may lead markets to assume the worst.
“I have no investments long or short in the banking sector. I am simply extremely concerned about financial contagion risk spiraling out of control and causing severe economic damage and hardship,” he said. “We need to stop this now. 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.”
https://twitter.com/BillAckman/status/1636569513469652993?s=20
The analysis caught the attention of Twitter CEO Elon Musk, who responded in agreement.
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“The inefficiency of the set of heterogeneous resource allocation databases we call money is astounding,” he tweeted.
https://twitter.com/elonmusk/status/1636612999879221248?s=20
The $30 billion rescue plan, orchestrated by the government, was announced on Thursday in an effort to prevent a wider collapse in the wake of Silicon Valley Bank’s collapse. However, the bank’s stock continued to tumble on Friday, despite seemingly recovering the day prior.