First Republic Bank led a drop in bank shares on Monday, despite regulators’ unprecedented moves on Sunday evening to protect all depositors in the collapsed Silicon Valley Bank and Signature Bank and provide additional capital to other vulnerable banks.
First Republic shares in San Francisco fell 65% on Monday after falling 33% the previous week. PacWest Bank sank 42% and Western Alliance Bancorp tumbled more than 70% as regional bank stocks plummeted. Zions Bancorporation was down 39%, while KeyCorp was down 23%. Other financial corporations were also under pressure, with Bank of America falling 6% and Charles Schwab falling 18%.
FINANCIAL STOCKS UNDER PRESSURE
|First Republic Bank
|Zions Bancorporation NA
|Western Alliance Bancorp
|Bank of America Corp
|Charles Schwab Corp
The decreases occurred despite the fact that the Federal Reserve announced on Sunday the creation of a new bank term financing program that would provide banks with loans for up to a year in exchange for high-quality collateral such as Treasurys. In addition, the central bank relaxed requirements at its discount window.
The Federal Reserve and JPMorgan Bank provided more liquidity to First Republic on Sunday. The bank said that the move brings its idle liquidity to $70 billion, prior to any financing from the new Fed facility.
“First Republic’s capital and liquidity positions are very strong, and its capital remains well above the regulatory threshold for well-capitalized banks,” said founder Jim Herbert and CEO Mike Roffler in a statement.
The SPDR S&P Regional Banking ETF fell more than 7% in premarket trading Monday, after falling 16% the previous week.
The drop in regional bank equities on Monday comes after a rush of withdrawals prompted SVB Financial to shut down. The huge proportion of uninsured deposits at SVB was a critical concern since the majority of the bank’s clients were not assured to receive their money back until the regulatory measures over the weekend.
Even though SVB has an unusually high number of deposits that aren’t covered by insurance, other mid-sized banks may have to deal with large withdrawals.
“We believe regionals with less diversified and large uninsured deposit bases are at risk of deposit flight, but not at the speed of SVB, and they should have time to tap wholesale funding markets (such as the FHLB) and raise cash levels. In a fragile environment like we are in, we believe banks should be cautious about the potential negative signaling effect of raising deposit rates to keep deposits,” Citi analyst Keith Horowitz said in a note to clients.
With $212 billion in assets, SVB was the greatest bank collapse in the United States since 2008. According to a securities filing, First Republic had around $213 billion in assets as of December 31.
Although First Republic is not as focused on a single area as SVB was on technology, the bank does cater to enterprises and wealthy individuals with substantial uninsured deposits.
“Unfortunately, one of the first consequences of SIVB’s collapse is probably that it will cause a flight of uninsured deposits from smaller, less diverse banks to larger, more diverse ones,” Oppenheimer analyst Chris Kotowski said in a note to clients.