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Regional banks steady after Monday plunge, but ratings warning keeps pressure on

Published 03/14/2023, 05:08 AM
Updated 03/14/2023, 05:59 AM

By Geoffrey Smith 

Investing.com -- Shares in U.S. regional banks steadied in premarket trading on Tuesday, but managed only a weak rebound after a warning about their credit rating kept up the pressure on the sector.

Moody's Investor Service put six banks - including First Republic (NYSE:FRC), whose stock fell over 60% on Monday - on watch for possible downgrades late on Monday, adding to concerns about the stability of their funding bases and the paper losses that have accumulated in their bond portfolios.

First Republic had been seen on Monday as the most likely to suffer contagion effects, following on from the collapse of Silicon Valley Bank and Signature Bank (NASDAQ:SBNY) last week. As with those two, First Republic has a high proportion of corporate deposits and retail deposits that are above the federally-insured threshold and consequently more likely to be pulled by nervous customers. 

Moody's warned of First Republic that "If it were to face higher-than-anticipated deposit outflows and liquidity backstops proved insufficient, the bank could need to sell assets, thus crystalizing unrealized losses.”

For the present, the market appears to think that Monday's move was excessive. First Republic stock was up 22% as of 05:45 ET (09:45 GMT). But that still leaves it down 70% from the end of February, and trading at only 0.42x the value of its assets, a huge discount that reflects a high degree of fear over its viability.

First Republic had said on Monday it had "enhanced and diversified its financial position" agreements with JPMorgan (NYSE:JPM), the Federal Reserve, and the Federal Home Loan Bank, giving it $70 billion of available liquidity in addition to the new Bank Term Funding Program announced by the Fed at the weekend. 

The pattern with First Republic was shared by many of the other banks to suffer heavy falls on Monday. Western Alliance (NYSE:WAL) stock, which lost 47% on Monday, was up 18%; Comerica (NYSE:CMA) stock and KeyCorp (NYSE:KEY) stock, which both lost 27%, were up 10% and 14%, respectively, while Zions Bancorp (NASDAQ:ZION) stock was up 10%, having lost 26% on Monday. 

PacWest (NASDAQ:PACW) stock stood out with a more robust 30% rise, helped by an upgrade to buy on valuation grounds from D.A. Davidson. However, even PacWest was still down by 50% from immediately before the collapse of SVB.


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