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Bank Stocks Resume Slide as Relief Over Rescue Fades Bank Stocks Resume Slide as Relief Over Rescue Fades
(about 4 hours later)
Renewed concern about the health of the banking system dragged down the stock market on Friday, suggesting that investors had little confidence that the crisis had run its course even after moves to shore up flailing lenders with injections of tens of billions of dollars. Stocks dropped on Friday, signaling that investors had little confidence that the banking crisis had run its course despite moves to shore up flailing lenders with injections of tens of billions of dollars.
The shares of many banks, including the recently rescued midsize lender First Republic, resumed their dizzying slide, erasing the previous day’s gains, which provided a brief moment of calm during a tumultuous week. The S&P 500 stock index fell about 1 percent in midafternoon trading. The shares of many banks resumed their dizzying slide, erasing gains from Thursday that had provided a brief moment of calm during a tumultuous week. First Republic, the beleaguered regional lender, lost a third of its already beaten-down value on Friday alone. The S&P 500 stock index fell about 1.1 percent — the week’s worst day of trading.
President Biden on Friday asked Congress to grant financial regulators broad new powers to punish the executives of failed lenders. Mr. Biden’s request came a day after new data showed that banks in the United States also borrowed record amounts from the Federal Reserve to meet short-term needs, another sign of acute stresses in the financial system. President Biden asked Congress on Friday to grant financial regulators broad new powers to punish the executives of failed lenders. A day earlier, data showed that banks in the United States borrowed record amounts from the Federal Reserve this week to meet short-term needs, another sign of acute stresses in the financial system.
“Sentiment remains weak and investor positioning remains conservative,” said Mark Hackett, the chief of investment research at Nationwide. “However, investors should recognize that this is not a repeat of the financial crisis. It is disruptive for the industry and painful for a select group of banks and institutions but the comparison to the financial crisis is premature.” The crisis was set in motion last week when clients of Silicon Valley Bank began to demand deposits as they worried about the losses the lender was taking on some investments. The run on deposits was too much, and regulators seized SVB.
First Republic’s shares fell more than 20 percent, erasing all of the previous day’s gains. Other regional banks, like PacWest and Western Alliance, fell more than 10 percent. Credit Suisse, which received a multibillion-dollar rescue on Thursday, also lost ground in European trading. A second bank, Signature in New York, fell days later, providing the backdrop to a week of whipsaw trading that undermined confidence in the banking sector and prompted concerns about the effects on the economy.
An index tracking the largest U.S. banks fell 4 percent, and has lost more than 20 percent of its value this year, versus a gain in the broader market over that period. Amid all the volatility, the S&P 500 remains up for the year, at least for the moment. “Sentiment remains weak, and investor positioning remains conservative,” said Mark Hackett, the chief of investment research at the insurance company Nationwide. “However, investors should recognize that this is not a repeat of the financial crisis. It is disruptive for the industry and painful for a select group of banks and institutions, but the comparison to the financial crisis is premature.”
On Thursday, First Republic Bank, whose stock price has cratered this month, announced a $30 billion rescue package. The bank also suspended its dividend and said it would take measures to reduce its debt. Still, investors have begun to worry about the longer-term implications of financial turmoil, analysts said. Even if the small banks can remain solvent, a pullback in lending activity, if it came with the economy under pressure, could have broader implications, making cash less available to businesses when they might need it most. It also means less new business for the banks themselves, after a period when some lost sizable deposits.
Four storied names in American finance — JPMorgan Chase, Bank of America, Citigroup and Wells Fargo — agreed to each place $5 billion in uninsured deposits with First Republic. Goldman Sachs and Morgan Stanley, mainstays of Wall Street, pitched in $2.5 billion apiece, and five smaller regional banks added $1 billion each. “The solvency concerns have not completely gone away,” said Michael Wong, an analyst at Morningstar. “But even if you solve the concerns from a bank run, if a bank loses a large amount of its deposits and they don’t return, then basically that bank has lost a large amount of its earnings potential.”
First Republic’s shares fell more than 30 percent on Friday. Other regional banks also came under pressure, with PacWest and Western Alliance both falling between 15 and 20 percent. Credit Suisse, the Swiss bank that received a multibillion-dollar rescue on Thursday, also lost ground in European trading.
The KBW bank index, which tracks the performance of 24 US banks, skidded more than 5 percent and has lost over 20 percent of its value this year, versus a small gain in the broader market over that period.
On Thursday, First Republic, whose stock price has cratered this month, announced a $30 billion rescue package funded by the largest banks in the United States. The bank also suspended its dividend and said it would take measures to reduce its debt.
JPMorgan Chase, Bank of America, Citigroup and Wells Fargo agreed to each place $5 billion in uninsured deposits with First Republic. Goldman Sachs and Morgan Stanley, mainstays of Wall Street, pitched in $2.5 billion apiece, and five regional banks added $1 billion each.
The banks, normally fierce rivals, issued a joint statement explaining their move: “America’s larger banks stand united with all banks to support our economy and all of those around us.”The banks, normally fierce rivals, issued a joint statement explaining their move: “America’s larger banks stand united with all banks to support our economy and all of those around us.”
The deputy Treasury secretary, Wally Adeyemo, said on CNBC on Friday that U.S. officials were seeing deposit levels stabilizing in small and midsize banks, and in some cases modestly rising. “This was due in no small fact to the way that we resolved the two institutions that failed,” he said, referring to the recent government takeovers of a once-obscure lender to the tech world, Silicon Valley Bank, and the small Signature Bank in New York. The deputy Treasury secretary, Wally Adeyemo, said on CNBC on Friday that U.S. officials were seeing deposit levels stabilizing in small and midsize banks, and in some cases modestly rising.
Mr. Biden’s appeal for new legislation would expand the regulator powers held by the Federal Deposit Insurance Corporation, which seized control of Silicon Valley Bank and Signature Bank. The proposal would allow the agency to claw back compensation from executives of failed banks, as well as bar them from taking other jobs in the financial industry. “This was due in no small fact to the way that we resolved the two institutions that failed,” he said, referring to the government takeovers of Silicon Valley Bank, a once-obscure lender to the tech world, and the small Signature Bank.
Earlier on Thursday, in Zurich, Credit Suisse announced that it had grabbed a $54 billion lifeline from Switzerland’s central bank. Credit Suisse has been battered by years of mistakes and controversies that have cost it two chief executives over three years. Shares in the 166-year-old Swiss bank had plunged to a record low before recovering somewhat. But analysts at UBS wrote on Friday that investors were likely to see First Republic’s rescue as a short-term fix and that banking stocks would “truly settle only after the market feels as if there is a longer-term solution” to First Republic’s woes. (The deposits given to First Republic from other banks are uninsured and for an initial term of 120 days.)
Other signs of anxiety persist. New data from the Federal Reserve released on Thursday showed that banks borrowed record amounts of emergency funds from the central bank, tapping both existing facilities and a new program to shore up liquidity that was announced after the seizure of Silicon Valley Bank and Signature Bank. Mr. Biden’s appeal for legislation would expand the regulator powers held by the Federal Deposit Insurance Corporation, which took control of Silicon Valley Bank and Signature. The proposal would allow the agency to claw back compensation from executives of failed banks, as well as bar them from taking other jobs in the financial industry.
Analysts at UBS wrote that investors were likely to see First Republic’s rescue as a short-term fix and that banking stocks would “truly settle only after the market feels as if there is a longer-term solution” to First Republic’s woes. (The deposits given to First Republic from other banks are uninsured and for an initial term of 120 days.) Other signs of anxiety also persisted. Data from the Federal Reserve released on Thursday showed that banks borrowed record amounts of emergency funds from the central bank in recent days, tapping both existing facilities and a new program to shore up liquidity that was announced after the seizure of Silicon Valley Bank and Signature.
Before the broad panic about banks first surfaced last week, the biggest challenge facing economic policymakers was rapid inflation. Central bankers were caught between trying to tame price rises while not causing growth to stall. Those efforts suddenly appeared far more complex with the sudden prospect of successive bank runs. The Federal Reserve is set to meet next week to set interest rates, and some traders are betting that policymakers will leave rates unchanged, a possibility that seemed unthinkable not long ago. “This has given me more conviction on my negative view, but I don’t think the world is falling apart,” said Seema Shah, senior global investment strategist at Principal Global Investors.
In China, which is trying to stabilize its economy after it stalled last year because of stringent “zero Covid” measures, the central bank on Friday evening acted to get more money in the hands of companies and consumers. It said it would reduce by a quarter-point the share of assets that Chinese commercial banks must keep on reserve. This frees the banks to lend more money, especially to real estate developers. The events of the past week, Ms. Shah added, may have brought forward the timeline in which the economy slips into recession. “The concern is what else will be unearthed? What else is out there?” she said.
Alan Rappeport, Keith Bradsher, Rob Copeland and Lauren Hirsch contributed reporting. Reporting was contributed by Alan Rappeport, Keith Bradsher, Rob Copeland and Lauren Hirsch.