Bank Crisis Widens As Signature Topples, Funding Props First Republic


The U.S. bank crisis deepened Monday as the financial industry continued to reel from last week’s closing of vital venture capital lender Silicon Valley Bank and its parent SVB Financial (SIVB) Friday — marking the second-largest bank collapse in U.S. history. On Sunday, regulators shuttered cryptocurrency-focused Signature Bank (SBNY) and moved the assets to a bridge bank while agencies search for a buyer. Investors continued to dump bank stocks early Monday.


Bank Stocks Reel

The market opened lower on Monday but then reversed sharply higher around 9:50 a.m. as President Biden delivered remarks to soothe concerns of a meltdown. “Thanks to the quick action of my administration over the past few days, Americans can have confidence that the banking system is safe,” he said in televised remarks. And President Biden said he would ask Congress and regulators to strengthen banking rules to, “make it less likely this kind of bank failure would happen again.”

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Financial stocks continued to drop Monday as investors felt for the limits of the bank crisis triggered on Friday. Trading for First Republic was halted early Monday after FRC stock fell nearly 68% after the open to 26.45 after sliding roughly 15% on Friday. WAL stock trading was temporarily paused as shares of Western Alliance Bancorp (WAL) toppled 80% Monday morning after shedding 20.88% Friday. PacWest Bancorp (PACW) was briefly halted as the stock plummeted nearly 52% Monday after collapsing 37.9% before the weekend. Zions Bancorp (ZION) retreated 34% Monday.

First Horizon (FHN) trading halted early Monday as FHN stock fell 23% in the morning. And Regions Financial (RF) trading was paused after sliding nearly 6% Monday.

Charles Schwab (SCHW) slid more than 16% Monday morning after losing 11.7% Friday. Schwab stock is on track for its largest decrease on record. Bank of America (BAC) weakened about 4.3% in early trading after inching lower Friday.

JPM stock pared early losses to less than 0.5% Monday. It climbed 2.5% Friday, one of the day’s few banking bright spots.

Bank Crisis: Signature Bank Closed

On Sunday, state regulators closed New York-based Signature Bank and appointed the FDIC as the receiver. Signature Bank is the 20th largest bank in the U.S. and roughly 30% of its deposits came from crypto customers.

The FDIC transferred all deposits and “substantially” all of the 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 Dec. 31, Signature Bank had $110.4 billion in total assets and $82.6 billion in deposits. Signature Bank operations and banking activities will resume Monday, March 13. Regulators guarantee that, “all depositors of the institution will be made whole. No losses will be borne by the taxpayers.” In a joint press release Sunday, Treasury Secretary Janet Yellen, Fed Chair Jerome Powell and FDIC Chair Martin Gruenberg approved systemic risk exceptions for Signature Bank to soothe fears of a bank crisis.

“Today we are taking decisive actions to protect the U.S. economy by strengthening public confidence in our banking system,” the regulators wrote in the release. “This step will ensure that the U.S. banking system continues to perform its vital roles of protecting deposits and providing access to credit to households and businesses in a manner that promotes strong and sustainable economic growth.”

A Special Assessment On Banks

Regulators approved similar systemic risk exceptions for Silicon Valley Bank. Shareholders and certain unsecured debtholders will not be protected. In addition, officials removed senior management, according to the announcement. Any losses to the Deposit Insurance Fund to support uninsured depositors will be recovered by a special assessment on banks, as required by law. And Sunday, the Federal Reserve Board announced it will make additional funding available to eligible institutions to assure banks have the ability to meet all their depositors’ needs.

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“The U.S. banking system remains resilient and on a solid foundation, in large part due to reforms that were made after the financial crisis that ensured better safeguards for the banking industry,” regulators wrote. “Those reforms combined with today’s actions demonstrate our commitment to take the necessary steps to ensure that depositors’ savings remain safe.”

First Republic Shores Up Funds

On Sunday, First Republic Bank (FRC) secured additional liquidity from the Federal Reserve Bank and JPMorgan (JPM) to shore up its operations. The additional borrowing capacity brings the total available, unused liquidity 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 on Monday, Bank of America removed its rating price target on First Republic, from its previous Buy rating and $90 price target. The unexpected bank failures resulted in First Republic “no longer trading on fundamentals,” and made the previous targets unreliable, Bank of America wrote in a research note.

PacWest Operations Update

On Friday, following the Silicon Valley Bank failure, PacWest Bancorp released an operations update on its current liquidity. PacWest listed $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 available from the Federal Reserve Discount Window.

“Though the banking industry is experiencing significant volatility in light of recent events, we want to reiterate that Pacific Western Bank is a well-performing, well-diversified, full-service commercial bank with more than 20 years of history,” CEO Paul Taylor said in the release. “We have been a proven partner to our customers through all economic cycles and are actively adapting in 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 largely in-line with the firm’s Q1 expectations, despite contagion concerns, Tenner wrote in a research note.

You can follow Harrison Miller for more stock news and updates on Twitter @IBD_Harrison


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