Shares of U.S. regional banks crashed after huge losses in First Republic Bank (FRC.N) as news of fresh financing failed to calm fears of possible bank contagion following the collapse of SVB Financial Group (SIVB.O) and Signature Bank (SBNY.O).
San Francisco-based First Republic bank has been able to meet withdrawal demands so far with the help of funding from JPMorgan Chase & Co (JPM.N), according to a report from the mid-cap lender’s executive chair, Jim Herbert, to CNBC.
However, his reassurance did little to stop the sellout. There were multiple trading halts as shares tumbled down by 67% at $28.05.
Other regional banks also crashed, with Western Alliance (WAL.N), KeyCorp (KEY.N), Comerica Inc (CMA.N), Huntington Bancshares Inc (HBAN.O), and PacWest Bancorp (PACW.O) down between 16% and 29%.
There were many trading stops on bank shares as the KBW regional banking index (.KRX) dropped by 5.4%, and the S&P 500 banking index (.SPXBK) fell by 6%.
According to Christopher McGratty, head of U.S. Bank Research at investment bank KBW, “the real issue for the industry is that there is a crisis of confidence in the stickiness of deposits and when that becomes dislocated, things can move very quickly”.
The bank’s stock was also downgraded due to the risk of deposit outflows from panicked large depositors after the bank run at SVB.
First Republic Bank which was founded in 1985 had $212 billion in assets and $176.4 billion in deposits as of the end of last year, according to its annual report.
The bank stands at a high risk as 70% of its deposits are uninsured, above the median of 55% for medium-sized banks and the third highest in the group after Silicon Valley Bank and Signature Bank.
Bank of America also cut its price target on First Republic Bank stock to $90 from $140.
The banking run follows several Fed interest rate hikes over the previous year, which pushed down yields on the 2-year Treasury note by the most since the financial crisis of 2008.
The market is “finding out in real time what the risk of rising interest rates at such a fast pace can do to the balance sheets of some of the regional banks”, Art Hogan, chief market strategist at B. Riley Wealth said.
Among Wall Street lenders, Bank of America Corp (BAC.N) dropped 3.3%, Citigroup Inc (C.N), and Wells Fargo (WFC.N) slid about 6% each, while lenders in Asia and Europe plunged too.
According to Bloomberg, the U.S. system of Federal Home Loan Banks (FHLB), which lends to banks and other member financial institutions primarily to help them make mortgages to consumers, is seeking help the situation by selling about $64 billion of short-term notes