Shares of US regional banks tumbled on Monday, led by sharp losses in First Republic Bank that failed to allay fears of a potential bank contagion following the collapse of SVB Financial Group and Signature Bank.
San Francisco-based First Republic has been able to meet withdrawal demands with the help of additional funding from JPMorgan Chase, Jim Herbert, the mid-cap lender’s executive chairman, told CNBC.
His assurances did little to keep the stock afloat. The fall in shares led to several trading halts, plunging 67% to $28.05.
Responding to questions from Reuters, a bank spokeswoman said the bank “continues to fully meet the needs of our customers at our offices and online.”
Other regional lenders also fell between 16% and 29%, with Western Alliance, KeyCorp, Comerica, Huntington Bankshares and PacWest Bancorp falling between 16% and 29%.
There were several trading halts on bank stocks, with the KBW Regional Banking Index down 5.4% and the S&P 500 Banking Index down 6%.
“The real issue for the industry is that there is a crisis of confidence in the stickiness of deposits and when that goes haywire, things can move very quickly,” said Christopher McGratty, head of US bank research at investment bank KBW.
US President Joe Biden vowed to do whatever is necessary to head off a potential banking crisis. On Sunday, national regulators took emergency measures, and First Republic secured additional financing through JP Morgan and the US Federal Reserve, bringing the total funding to $70 billion.
Despite injecting cash, Raymond James double downgraded the bank’s stock, after the bank run in SVB exposed the risk of an outflow of deposits from nervous large depositors.
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.
According to a Bank of America note, about 70% of its deposits are uninsured, well above the average of 55% for mid-sized banks and the third largest in the group after Silicon Valley Bank and Signature Bank.
Bank of America cut its price target on the stock to $90 from $140.
The banking rout after several Fed interest rate hikes over the past year has driven the yield on the 2-year Treasury note to its lowest 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 interest rates rising at such a rapid pace could do to the balance sheets of some regional banks.”
Hogan said each regional bank has its own exposure to different parts of the market. He added that the fate of regional bank stocks will be a “case by case” as investors look to see which may pose the most downside risks.
Brian Levitt, global strategist at Invesco, said the market is focusing on smaller banks with specialized lending businesses. After the Silicon Valley bank, investors turn their attention to the next bank with interest rate and exposure to specific credit risks. “First Republic Bank, which has significant investments in coastal real estate markets, appears to be next on the list,” he said.
Among Wall Street lenders, Bank of America declined 3.3%, Citigroup and Wells Fargo declined nearly 6% each, while lenders in Asia and Europe also declined.
Bloomberg News reported that the US system of Federal Home Loan Banks (FHLB), which lends primarily to banks and other member financial institutions to help consumers afford mortgages, is seeking to raise about $64 billion .
