Banking crisis widens as Signature funding backs First Republic falls
The US banking crisis deepened on Monday as the financial industry continued to reel from the closure of vital venture capitalist Silicon Valley Bank and its parent last week SVB Finance (SIVB) Friday – marks the second largest bank collapse in US history. On Sunday, regulators closed the cryptocurrency focused signature bank (SBNY) and moved assets to a bridge bank while agencies look for a buyer. Investors continued to sell off bank stocks early Monday.
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The market opened lower Monday but then reversed sharply higher around 9:50 a.m. as President Biden made comments to allay meltdown concerns. “Thanks to my administration’s quick actions over the past few days, Americans can have confidence that the banking system is safe,” he said in a televised address. And President Biden said he will urge Congress and regulators to tighten banking rules to “make it less likely that this type of bank failure will happen again.”
Financial stocks fell further Monday as investors felt the limits of Friday’s banking crisis. Trading for First Republic halted early Monday after FRC shares fell nearly 68% to 26.45 after the open after falling about 15% on Friday. WAL stock trading has been temporarily paused as stocks Western Alliance Bancorp (WAL) fell 80% on Monday morning after losing 20.88% on Friday. PacWest Bancorp (PACW) was briefly halted as the stock plummeted nearly 52% on Monday after plummeting 37.9% ahead of the weekend. Zion Bancorp (ZION) is down 34% on Monday.
First Horizon (FHN) was discontinued early Monday when FHN stock fell 23% in the morning. And regions finance (RF) Trading was halted after falling almost 6% on Monday.
Karl Schwab (SCHW) slipped more than 16% on Monday morning after shedding 11.7% on Friday. Bank of America (BAC) weakened about 4.3% in early trade after slowly sliding lower on Friday.
JPM stock pared early losses to less than 0.5% on Monday. It rose 2.5% on Friday, one of the few bright spots in the banking sector for the day.
Banking crisis: signature bank closed
On Sunday, state regulators shut down New York-based Signature Bank and appointed the FDIC as receiver. Signature Bank is the 20th largest bank in the US and about 30% of its deposits came from crypto customers.
The FDIC transferred all deposits and “substantially” all assets to Signature Bridge Bank. The bridge bank is a full service bank operated by the agency as it markets the institution to potential bidders.
As of December 31, Signature Bank had total assets of $110.4 billion and deposits of $82.6 billion. Signature Bank operations and banking will resume on Monday, March 13th. Regulators guarantee that “all depositors of the institution will be recovered. No losses will be borne by taxpayers.” In a joint news release Sunday, Treasury Secretary Janet Yellen, Fed Chair Jerome Powell and FDIC Chair Martin Gruenberg approved systemic risk exemptions for Signature Bank to allay fears of a banking crisis.
“Today we are taking decisive action to protect the U.S. economy by enhancing public confidence in our banking system,” regulators wrote in the release. “This move will ensure that the U.S. banking system continues to fulfill its important role in protecting deposits and providing access to credit for households and businesses in a way that supports strong and sustainable economic growth.”
A special assessment of banks
Regulators approved similar systemic risk exemptions for Silicon Valley Bank. Shareholders and certain holders of unsecured debt will not be protected. Officials also fired management, according to the release. Any losses incurred by the Deposit Insurance Fund to support uninsured depositors will be reimbursed through a special assessment of the banks in accordance with the law. And on Sunday, the Federal Reserve Board announced it will make additional funds available to eligible institutions to ensure banks are able to meet all of their depositors’ needs.
“The US banking system remains resilient and is on solid foundations, in large part due to post-financial crisis reforms that provided better protection for the banking industry,” the regulators wrote. “These reforms, coupled with today’s actions, demonstrate our commitment to taking the necessary steps to ensure depositor savings remain safe.”
First Republic strengthens funds
On Sunday, Bank of the First Republic (FRC) secured additional liquidity from the Federal Reserve Bank and JP Morgan (JPM) to strengthen its operations. The additional borrowing capacity brings total unused liquidity available to fund operations to more than $70 billion, the company announced in a press release.
“First Republic’s capital and liquidity positions are very strong and its capital remains well above the regulatory threshold for well-capitalized banks,” CEO Jim Herbert said in the announcement.
Meanwhile, Bank of America on Monday removed its rating price target on First Republic from its previous Buy rating and price target of $90. The unexpected bank failures caused First Republic to “stop acting on fundamentals” and made previous targets unreliable, Bank of America wrote in a research note.
PacWest Operations Update
On Friday, following the collapse of Silicon Valley Bank, PacWest Bancorp released an operational update on its current liquidity. PacWest recorded $41 billion in assets and $33.2 billion in deposits as of March 9. The Los Angeles-based bank lists $28.3 billion in loan balances, $1.9 billion in cash on hand, $5.3 billion in liquid securities and about $2 billion in federal funds Reserve available are discount windows.
“Although the banking industry is experiencing significant volatility in light of recent events, we would like to reiterate that Pacific Western Bank is a strong, well-diversified, full-service commercial bank with more than 20 years of history,” CEO Paul Taylor said in the publication . “We have proven to be a trusted partner to our customers through all economic cycles and are actively adapting to the current economic environment.”
Following the update, DA Davidson analyst Gary Tenner upgraded PacWest to Buy from Neutral on Monday but lowered the price target to 29 from 31. The bank’s financial update was broadly in line with the company’s expectations for the first quarter, despite contagion concerns, Tenner wrote in a research note .
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