First Republic shares rise more than 20% in volatile trading as regional bank stocks try to rebound

Jesse Pound and Fred Imbert
CNBC
Tue, 14 Mar 2023 02:10 UTC

© Jeenah Moon | Bloomberg | Getty Images

A First Republic Bank branch in New York, US, on Friday, March 10, 2023.

Shares of First Republic rose sharply on Tuesday as regional banks attempted to rebound from a deep sell-off, but some of the stocks struggled to hold their ground as the day progressed.

First Republic ended the day with a 27.8% gain after climbing more than 60% earlier in the session. PacWest was up nearly 34% after following a similar trajectory, and Charles Schwab added about 9%.

However, the SPDR S&P Regional Banking ETF (KRE) rose just 2% as other regional banks struggled to hold onto their gains. The volatility was evident in Zions Bancorp. and Western Alliance, which each turned negative briefly in afternoon trading after rising earlier in the session. The banks then finished the day with gains of 4% and 14%, respectively.

Those moves come after regional banks fell sharply Monday, even though U.S. regulators took extraordinary measures to backstop all depositors in the now-failed Silicon Valley Bank. The KRE suffered its biggest one-day loss since March 2020, tumbling 12.3%.

First Republic led the way lower on Monday, falling 61.8%. Executive Chairman Jim Herbert told CNBC's Jim Cramer that the bank was not seeing big outflows and was operating as usual. The bank also announced Sunday it received additional liquidity from JPMorgan and the Federal Reserve.

After Tuesday's move, First Republic's stock is still down more than 50% for the week.

While the declines for regional bank stocks Monday showed that many investors were not convinced the regulators' moves would be enough to stop more bank runs, there does not appear to have been widespread withdrawals from banks in recent days, according to Raymond James analyst Daniel Tamayo.

"Outflows did not accelerate during the last few days and, in fact, some banks have seen net inflows given movement in deposits from SVB and Signature Bank," Tamayo said in a note to clients.

Confident statements from finance executives seemed to help support Tuesday's rally. Charles Schwab CEO CEO Walt Bettinger said on CNBC's "The Exchange" that the firm was seeing inflows in "significant numbers." Meanwhile, KeyCorp CEO Chris Gorman said on CNBC's "Squawk on the Street" on Tuesday that his bank has not seen significant deposit outflows in recent days and is actually getting cash inflows from retail customers.

However, First Republic's shares came off their highs of the day after S&P Global put the bank's credit rating under review with negative implications, citing volatile deposit flows. Moody's Investors Service also downgraded its view on the U.S. banking system to negative from stable.

Comment: More, from RT:

"We have changed to negative from stable our outlook on the US banking system to reflect the rapid deterioration in the operating environment following deposit runs at Silicon Valley Bank (SVB), Silvergate Bank, and Signature Bank (SNY) and the failures of SVB and SNY," Moody's wrote, adding that it was expecting the Federal Reserve to continue tightening monetary policy.

Zions Bancorporation, Western Alliance Bancorporation, Comerica, UMB Financial Corporation and Intrust Financial Corporation were all on the list, Moody's revealed. The agency cited concerns over the lenders' reliance on uninsured deposit funding and unrealized losses in their asset portfolios.

"The review for downgrade reflects the extremely volatile funding conditions for some US banks exposed to the risk of uninsured deposit outflows," it stated.

Moody's also slashed the debt ratings of collapsed New York-based Signature Bank deep into junk territory, withdrawing future ratings for the insolvent lender.

In addition to backstopping the deposits at SVB and Signature Bank, which was closed Sunday, federal regulators also announced efforts Sunday to stabilize the wider banking system. One of those is the Fed's Bank Term Funding Program, which will allow banks to exchange certain high-quality assets for cash without booking mark-to-market losses.

Comment: The effects are spreading to the Asian market as well:

Asia's leading stock index erased all of its gains for the year on Tuesday as bank stocks continued declines triggered by the collapse of a growing number of US financial establishments.

The MSCI Asia Pacific index fell 2.3%, with Japanese banks among the biggest drags on the market. The index is down more than 9% from this year's high recorded in January, wiping out its gains for the year. The MSCI entered a bull market during the second trading week of the year, reflecting optimism from China's reopening.

The Tokyo Stock Price Index (Topix) fell almost 3%, representing the biggest daily decline in more than five months, while the MSCI ASEAN Index slumped 9.8% from a January high.

Meanwhile, MSCI's broadest index of Asia-Pacific shares outside Japan was down 1.47%, also reaching new lows for the year.

Asian stocks are reacting "to growing risks of a US recession happening earlier than previously expected," head of Asia equity strategy at Societe Generale Frank Benzimra said, adding that "cyclical markets such as Korea, Japan, and cyclical sectors and small caps tend to be more impacted in this context."