Stocks move into positive territory on report of a potential capital infusion for First Republic, as the health of the U.S. banking sector remains in focus. U.S. bank stocks reversed course and rose Thursday after a report surfaced of a possible capital infusion in the works for First Republic Bank and Treasury Secretary Janet Yellen praised the strength of the financial system. The Wall Street Journal reported that Morgan Stanley, JPMorgan Chase & Co. and others are considering ways to provide financial support for First Republic Bank (FRC). Meanwhile, U.S. Treasury Secretary Janet Yellen plans to tell senators today that the U.S. banking system is on solid footing and that Americans can be confident about their deposits, according to prepared testimony for her appearance before the Senate Finance Committee.
Former Treasury Secretary Larry Summers told CNN that the current situation is not another global financial crisis like the one that shook the world after Lehman Brothers collapsed nearly 15 years ago. “I don’t think this is a time for panic or alarm,” Summers said. “This is not 2008, where people needed to be worried about whether they could get their money from the ATM machine. It absolutely is not that.” First Republic (FRC) tumbled another 20%. Reports surfaced it’s exploring its strategic options, including a potential sale of the company. The stock fell below its all-time low of $22.48 but then rose off its lows after the The Wall Street Journal report. Concerns around the bank’s solvency continue to swirl in the wake of the failures of Silicon Valley Bank, Signature Bank and Silvergate Bank in the past week. At last check, First Republic has fallen 77% in the past week.
In midday action Thursday, JPMorgan Chase & Co. (JPM) rose 1.5%, Morgan Stanley (MS) gained 2.1% and Citigroup Inc. (C) moved higher by 0.9%. Bank of America Corp. (BAC) advanced by 1.4% and Wells Fargo & Co. (WFC) rose 1.3%. Meanwhile, Credit Suisse Group’s (CSGN.EB) stock rose 3.2% after it said it lined up $54 billion in credit from the Swiss National Bank. Goldman Sachs Group Inc. (GS) rose by 0.6%. The Wall Street Journal reported that Goldman Sachs had underestimated the danger that a proposed $2.25 billion capital raise at Silicon Valley Bank could spark a crisis of confidence and a further run on deposits. SVB went out of business on Friday, sparking widespread concerns in the sector.
Meanwhile, David Konrad, the managing director of KBW, said Thursday that the failures of Silicon Valley Bank, Silvergate Bank and Signature Bank in the past week are likely to result in increased regulations over time that may in turn affect industry profitability. Sen. Elizabeth Warren on Wednesday reiterated her criticism of the 2018 easing of Dodd-Frank rules for small and midsize banks and joined with dozens of fellow Democratic lawmakers to introduce a bill that would scrap that rollback. Western Alliance Bancorp’s stock fell 9.8% after credit-rating agency Fitch Ratings placed the company’s debt and deposit ratings on rating watch negative. Fitch analysts said current market conditions “have created liquidity stresses outside the baseline assumptions.” The ratings agency said it’s considering the assignment of a negative or stable outlook for the bank depending on market conditions and the impact on the bank’s deposit franchise, long-term earning power and capitalisation.
Fitch noted that Western Alliance Bancorp reported cash reserves of $25 billion in a March 13 filing. The company’s cash is equivalent to about 47% of total deposits reported as of Dec. 31. The bank also “communicated moderate deposit outflows and insured deposits in excess of 50% of total deposits,” Fitch said. The ratings agency also said the Federal Reserve’s new Bank Term Funding Program “provides a further liquidity backstop at favourable terms” for Western Alliance. This program, set up after the collapse of two U.S. banks last week, could see up to $2 trillion of use, according to a new analysis by JPMorgan. JPMorgan analyst Nikolaos Panigirtzoglou said six regional banks on their own have a combined $460 billion of uninsured deposits. Some $2 trillion is the par amount of bonds held by U.S. banks outside the five largest.
Charles Schwab Corp. (SCHW) dropped by 1.6%. Executives and directors at Schwab bought nearly $7 million worth of the financial-services company’s beaten-down stock Tuesday and Wednesday in an apparent vote of confidence in the company’s ability to weather the ongoing bank rout. Jefferies analyst Ken Usdin said in a note to clients Thursday that he had met with Citigroup Chief Financial Officer Mark Mason and that the company remains in a strong position despite a more uncertain operating environment. Citi is sticking to its target for a return on average tangible common shareholders’ equity (ROTCE) of 11% to 12%, he said. ROTCE is calculated by dividing net earnings applicable to common shareholders by average monthly tangible common shareholders’ equity. Citi continues to benefit from high capital levels, ample liquidity and “sticky” operational deposits, Usdin said.
“While Citi is mindful of the more uncertain operating environment and current volatility, the bank’s overall strategic plan is intact, including its divestiture strategy, growth priorities, and cost reduction plans,” Usdin said. The KBW Nasdaq Bank Index rose 0.8% and the Financial Select Sector SPDR exchange-traded fund (XLF) moved up by 1.5%. Also read New Fed bank facility could see up to $2 trillion of usage, JPMorgan analysts say. MarketWatch