Bank shares plunge as much as 71% in premarket trading despite Biden endorsement
Bank shares plunged as much as 71 percent before trading this morning despite efforts by Joe Biden to calm investors following the collapse of Silicon Valley Bank.
First Republic Bank shares fell as low as $47.25 on Monday amid frenzied fears of a bank rout when Wall Street opens trading at 9.30am.
Biden is due to speak at 8am in a bid to bolster confidence in the sector after the White House guaranteed yesterday that it would make SVB and Signature Bank clients “with integrity” and that “the taxpayer will take no loss.”
SVB’s rapid plunge on Friday, the second-biggest banking collapse in history, has ignited fears of contagion in the banking sector amid the Federal Reserve’s strongest rate-hike cycle since the early 1980s. .
But investors smell blood in the water this morning, with several US banks suffering in early trading: PacWest Bancorp shares are down 41 percent, Western Alliance Bancorp shares are down 33 percent and Bank of America shares they fell 4 percent.
US President Joe Biden walks to board Marine One as it leaves the South Lawn of the White House, in Washington, DC, on March 10. The Biden administration tried to bolster confidence in the sector yesterday by guaranteeing funds from SVB and Signature Bank. clients saying all clients would be ‘resolved’ and ‘taxpayer will bear no loss’
First Republic shares led losses among other regional lenders, as much as 71 percent in premarket trading.
Shares of European banks suffered their biggest drop in more than a year and bond markets saw a giant repricing on rate hike bets on Monday as global efforts to limit the fallout from the collapse of Silicon Valley Bank ( SVB) failed to allay fears.
First Republic said it had secured additional financing through JPMorgan Chase & Co, giving it access to a total of $70 billion in funding through various sources.
The lender also said it had an additional loan facility from the US Federal Reserve.
Despite the cash injection, Raymond James twice downgraded the bank’s shares to ‘market perform’ from ‘strong buy’, highlighting the risk of deposit outflows facing the First Republic due to panic from large depositors after the bank run on SVB last week.
“While the (SVB) bank is better positioned for possible deposit outflows on Sunday night than it might have been earlier in the weekend, if there are net deposit outflows, it will reduce the EPS power of the bank,” he said. David Long, Raymond James analyst. wrote in the note.
US authorities launched emergency measures on Sunday to bolster confidence in the banking system after SVB’s bankruptcy threatened to unleash a broader financial crisis.
First Republic shares led losses among other regional lenders, with Western Alliance (WAL.N) falling more than 26% in pre-bell trade.
Shares of European banks suffered their biggest drop in more than a year and bond markets saw a giant repricing on rate hike bets on Monday as global efforts to limit the fallout from the collapse of Silicon Valley Bank ( SVB) failed to allay fears.
The dollar also fell as Wall Street heavyweights such as Goldman Sachs predicted that the US Federal Reserve would no longer raise interest rates next week, capping the biggest three-day rally for bonds in the US. Short-term treasury since 1987.
Europe’s banking index plunged 6% after losing 3.8% on Friday. HSBC’s London share price fell 1.45% after it said it would acquire the UK subsidiary of affected Silicon Valley Bank for the token amount of 1 pound ($1.21).
Over the weekend, the Fed and US Treasury announced a series of measures to stabilize the banking system and said SVB depositors would have access to their deposits on Monday.
The Fed also said it would make additional funds available through a new “Bank Term Financing Program,” which would offer loans of up to one year to depository institutions, backed by Treasury bonds and other assets these institutions hold.
A Brinks security truck is parked outside the Silicon Valley Bank in Santa Clara as investors line up outside after the bank closed its doors. The Federal Deposit Insurance Corporation (FDIC) seized SVB’s assets today as depositors, mostly tech workers and start-ups, began withdrawing their money following the shock announcement of a loss of $1.8 billion.
Overnight in Asia, ongoing concerns were seen in Japan’s Topix Banking Index, which lost 4%, while Singapore’s largest banks also lost around 1%.
“We’re looking at a classic flight to safety,” said Tom Caddick, managing director of Nedgroup Investments. “Higher interest rates and a slowing economy were always going to hurt.”
US authorities have also seized New York-based Signature Bank, the second bank failure in a matter of days.
Analysts noted that, more importantly, the Fed would accept guarantees at par rather than mark-to-market, allowing banks to borrow funds without having to sell assets at a loss.
Monday’s loss left more than 99% of companies listed on the European benchmark STOXX 600 index in the red. Only three stocks avoided the slide, Qinetiq, Reckitt and Vantage Towers, up 0.4%, 0.2% and 0.1%, respectively.
One ray of hope was that futures markets showed Wall Street’s benchmark S&P 500 opened slightly higher later.
Such was the concern for financial stability that investors speculated that the Federal Reserve would now be reluctant to rock the boat by raising interest rates by 50 basis points next week, and it may not even.
Fed funds futures rose to rule out any chance of a half-point rise, compared with around 70% before the SVB news broke last week. By contrast, futures implied about a 14% chance that the Fed would hold firm.
The implied peak in rates eased to 5.08%, from 5.69% last Wednesday, and markets again priced in rate cuts at the end of the year.
“In light of the stress in the banking system, we no longer expect the FOMC to hike rates at its next meeting on March 22,” Goldman Sachs analysts wrote.
“We have left our expectation that the FOMC will deliver 25bp hikes in May, June and July unchanged and now expect a terminal rate of 5.25-5.5%, although we see considerable uncertainty about the path.”
Such talk, combined with the switch to safety, sent two-year Treasury yields up 7 basis points at 0958 GMT to 4.63%, a world away from the 5.08% high last week.
Yields are now down 66 basis points in just three sessions, a drop not seen since the Black Monday market crash of 1987.
Much will depend on what the US consumer price numbers reveal on Tuesday, with an obvious risk that a high reading will increase pressure on the Fed to rise aggressively even with the financial system under pressure.
The European Central Bank meets on Thursday and is still expected to raise rates by 50 basis points and signal further tightening ahead, although it will now have to take financial stability into account.
In currency markets, the dollar index, which measures the value of the greenback against a basket of currencies, fell 0.3%. The pound and the euro were up around 0.2%, while the Japanese yen, for sure, was up more than 1%.
Gold was also up nearly 1% at $1,885 an ounce, after rising 2% on Friday. Oil prices lost more than 1.5%, although Brent returned to 81.48 a barrel and US crude to 75.28 dollars a barrel. ($1 = 0.8296 pounds)