First Republic sparked a comeback rally in regional bank stocks on Tuesday, as investors hoped for some strategic move from the embattled bank — or some other major regulatory move — to halt the industry’s downward spiral.
The move comes after a speech by Chancellor of the Exchequer Janet Yellen was released, saying the government could cut deposits at more banks if there was a risk of contagion. Regional bank stocks have been under pressure since a major deposit outflow led to the bankruptcy of Silicon Valley Bank and Signature Bank. Regulators guaranteed the deposits at those institutions after they closed.
“The steps we took were not aimed at helping specific banks or classes of banks. Our intervention was necessary to protect the broader U.S. banking system,” Yellen said in remarks prepared for a speech to the American Bankers Association on Tuesday. “And similar actions may be warranted if smaller institutions face deposit runs that pose the risk of contagion.”
People approach a branch of the First Republic Bank in New York City on March 16, 2023.
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Shares of First Republic were up 29.6% in trading on Tuesday, after a 90% plunge year-to-date in March and a record low on Monday. The SPDR S&P Regional Banking ETF gained 5.8%, after falling 29% in March year-to-date.
First Republic is seen as one of the remaining regional banks most at risk of suffering the same fate as SVB, due to the large percentage of uninsured deposits it had at the end of the fourth quarter. JPMorgan Chase last week led a group of 11 banks to collectively pour $30 billion into First Republic, but its shares continued to fall.
First Republic selected Lazard to help with a strategic options assessment, The Wall Street Journal reported late Tuesdayciting famous people.
“Following Thursday’s $30 billion uninsured deposit by the country’s 11 largest banks, along with cash, First Republic Bank is well positioned to manage short-term deposits,” First Republic said in a recent statement.
David Faber of CNBC reported this Monday JPMorgan provides advice on alternatives to the San Francisco bank. Those alternatives include a capital increase or possibly even a sale, sources told Faber. CNBC’s Kayla Tausche reported Tuesday that the capital injection would only come if a sale fails to materialize.
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First Republic, 1 day
Reuters reported Tuesday that major bank leaders had a pre-scheduled meeting in Washington, with First Republic as the topic of discussion, and that the regional bank was considering downsizing as a way to raise cash.
Also helping sentiment was one Bloomberg News report that the Treasury Department investigates whether regulators have the authority to allow deposits in excess of the Federal Deposit Insurance Corp.’s current limit. temporarily without Congressional approval, citing people with knowledge of the talks. However, the report said these government officials do not yet see such drastic measures as necessary.
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Regional Bank ETF, 1 day
“There has been speculation that the limit could be doubled, and further speculation that the FDIC might decide to insure all deposits,” Alexander Twerdahl, a Piper Sandler analyst, wrote in a recent note. “In reality, it would take an act of Congress to change the FDIC’s insurance limit and we understand it’s probably not an issue that will be taken up any time soon.”
Key Corp And US Bank Corp each jumped more than 8% while Western Alliance And PacWest Bancorp. gained almost 15% and more than 18% respectively.
— CNBC’s Michael Bloom contributed reporting.
