First Republic shares dive on contagion fears, dragging US regional banks

March 13 (Reuters) – Shares in U.S. regional banks fell on Monday, led by sharp losses in First Republic Bank ( FRC.N ) as news of new funding failed to quell fears of possible bank contagion following the collapse of SVB Financial Group ( SIVB ) .O) and Signature Bank (SBNY.O).

San Francisco-based First Republic has been able to meet withdrawal demands with the help of additional funding from JPMorgan Chase & Co ( JPM.N ), the mid-cap lender’s head, Jim Herbert, told CNBC.

However, Herbert’s comments did little to keep the stock afloat. There were more trading halts as shares tumbled, last down 67% to $28.05.

In response to Reuters queries, a bank spokesman said the bank “continues to fully serve the needs of our customers by opening accounts, making loans, conducting transactions … at our offices and online.”

Other regional lenders also fell, with Western Alliance ( WAL.N ), KeyCorp ( KEY.N ), Comerica Inc ( CMA.N ), Huntington Bancshares Inc ( HBAN.O ) and PacWest Bancorp ( PACW.O ) down between 16% and 29%.

Latest updates

See 2 more stories

There were more trading halts in bank stocks as the KBW Regional Bank Index (.KRX) fell 5.4% and the S&P 500 Bank Index (.SPXBK) fell 6%.

“The real problem for the industry is that there is a crisis of confidence in the stickiness of deposits, and when that gets shifted, things can move very quickly,” said Christopher McGratty, head of US Bank Research at investment bank KBW.

US President Joe Biden pledged to do whatever was necessary to resolve a potential banking crisis. On Sunday, national regulators took emergency measures to preserve confidence in the system, and First Republic secured additional financing through JPMorgan and the U.S. Federal Reserve, accessing a total of $70 billion in funds.

Despite the cash infusion, Raymond James downgraded the bank’s stock, highlighting the risk of deposit outflows First Republic faces from panicked large depositors after the bank run at SVB.

Founded in 1985, First Republic had $212 billion in assets and $176.4 billion in deposits at the end of last year, according to its annual report.

About 70% of its deposits are uninsured, which is above the 55% median for midsize banks and the third-highest in the group behind Silicon Valley Bank and Signature Bank, according to a Bank of America note.

Bank of America cut its price target on the stock to $90 from $140.

The bankruptcy, which follows several Fed rate hikes over the past year, has pushed yields on the 2-year Treasury bond down by the most since the 2008 financial crisis.

Art Hogan, chief market strategist at B. Riley Wealth, said the market is “finding out in real time what the risk of rising interest rates at such a rapid pace could do to the balance sheets of some of the regional banks”.

Hogan said each regional bank has its own exposure to different parts of the market. “For example, if you’re a regional bank exposed to commercial real estate, well, office real estate is not a positive … in the energy crisis, you saw all the regional banks in Texas come under pressure because of their exposure to oil.”

He added that the fate of regional bank stocks will be “case by case” as investors look for which ones may have the most downside exposure. Other traders wondered if the panic could become self-fulfilling, pushing people to move money from smaller lenders to bigger banks.

Among Wall Street lenders, Bank of America Corp ( BAC.N ) fell 3.3%, Citigroup Inc ( CN ) and Wells Fargo ( WFC.N ) each fell about 6%, while lenders in Asia and Europe also fell.

The U.S. system of Federal Home Loan Banks (FHLB), which lends to banks and other member financial institutions primarily to help them make mortgage loans to consumers, is seeking to raise about $64 billion by selling short-term notes, Bloomberg News reported.

Reporting by Medha Singh in Bengaluru, Tatiana Bautzer in New York; Editing by Shinjini Ganguli and David Gregorio

Our standards: Thomson Reuters Trust Principles.

Leave a Reply

Scroll to Top
%d bloggers like this: