First Republic Bank shares drop: Even after the extraordinary actions taken by regulators on Sunday evening to recapitalize all depositors in failed Silicon Valley Bank and Signature Bank and offer extra funding to other troubled institutions, bank shares fell on Monday, led by First Republic Bank shares. This happened even though regulators had taken those actions.
After a drop of 33% in the previous week, San Francisco’s First Republic Bank shares fell another 61.8% on Monday. As a result of the dramatic decline in the price of regional bank stocks, PacWest Bancorp fell by 45%, and Western Alliance Bank lost more than 47%. Both Zions Bancorporation and KeyCorp had a decline of approximately 26%, with KeyCorp falling 27%. There was also downward pressure on other financial companies, such as Bank of America, which dropped 5.8%, and Charles Schwab, which dropped more than 11%.
Throughout the day, trading in a significant number of bank stocks was periodically interrupted due to volatility. The falls occurred despite the announcement that the Federal Reserve announced a new Bank Term Financing Program on Sunday. This program will lend loans to banks for up to a year in exchange for high-quality collateral such as Treasurys. But, the news did not prevent the declines from occurring. The terms and circumstances at the discount window were also loosened by the central bank.
On Sunday, First Republic said that it had been provided with additional liquidity by the Federal Reserve and JPMorgan Chase. The bank has stated that as a result of the move, its available liquidity has increased to $70 billion. This figure is before the bank receives any cash from the new Fed facility.
In a statement, First Republic’s founder Jim Herbert, and CEO Mike Roffler claimed that the company’s capital and liquidity situations are very solid and that First Republic’s capital continues to be far higher than the statutory benchmark for adequately capitalized banks.
Herbert also shared with Jim Cramer of CNBC on Monday that the bank was continuing to function normally and that there had not been a significant exodus of deposits.
In a statement, Western Alliance stated that it is experiencing “modest” withdrawals and that it has taken extra actions to bolster its liquidity. In the meantime, the SPDR S&P Regional Banking ETF suffered another loss of 16% over the past week, which was followed by a loss of 12% on Monday.
The sudden rush of customers to withdraw their money from SVB Financial on Monday led to the closure of the bank, which resulted in the fall of regional bank stock prices. A significant problem was that SVB had a relatively high proportion of uninsured deposits; hence, the vast majority of the bank’s clients did not have any assurance that they would get their money back before the weekend’s regulatory actions.
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Although SVB has an abnormally high percentage of uninsured deposits, other medium-sized banks may also be in danger of experiencing big withdrawals.
It is our opinion that regional banks with smaller portfolios and larger amounts of deposits that are not federally insured are more vulnerable to a run on their deposits than SVB. They should have time to tap wholesale funding markets (such as FHLB), and they should be able to improve cash levels. Citi analyst Keith Horowitz said in a note to clients that banks should be cautious about the potential negative signaling effect of raising deposit rates to keep deposits in a fragile environment like the one we are currently in. Horowitz warned that banks should tread carefully when considering the “negative signaling effect” of increasing deposit rates to retain customers’ savings.
SVB was the most financially significant American bank to fail since 2008, with assets totaling a staggering $212 billion. According to a securities filing, as of the 31st of December, First Republic reported having assets of around $213 billion.
Although First Republic is not as concentrated in one industry as SVB was with technology, the bank does tend to cater to businesses and wealthy individuals who have large uninsured deposits. This is the case even though First Republic is not as concentrated in one industry as SVB was.
Chris Kotowski, an analyst at Oppenheimer, wrote in a note to clients that one of the first effects of SIVB’s demise is likely to be a flight of uninsured deposits a shift away from fairly small, less diverse banks and towards larger, more varied ones.
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