Bank stocks were generally lower on Wednesday as regulators and bank chiefs continued to take weak positions in the U.S. strongholds of small and medium-sized banks. Financial stocks were little changed after the Federal Reserve’s crucial decision to raise rates in the afternoon.
Financial stocks rose sharply on Tuesday after Treasury Secretary Janet Yellen declared the banking system sound and said the government was ready to provide additional deposit guarantees if needed.
Central bank rate hike
The Federal Reserve on Wednesday moved to raise the federal funds rate by 25 basis points, to a range of 4.75% to 5%. There was an increase In line with market expectations. The sector has been hit by the central bank’s rapid rate hikes, and any hike was expected to hurt small and medium-sized banks.
New Quarterly Forecasts Federal Reserve Policy Committee members expect the key interest rate to be 5.1% in 2023, signaling a further hike. The central bank sees the benchmark federal funds rate falling to 4.3% by the end of 2024, up from a forecast of 4.1% from December.
However, officials hinted that the interest rate hike may be put on hold soon. According to a post-meeting policy statement, the “Committee anticipates that some additional policy confirmation may be appropriate”. Reports prior to March 2022 indicated a “continuing increase” in policy rates. But the phrase was dropped.
Regional bank stocks fell following the news. Financial stocks rose slightly ahead of the announcement.
First Republic Bank is hiring consultants
First Republic Bank (FRC) has brought Lazard (Los) and McKinsey as consultants while it explores strategic options. Those include potential sales, capital infusions or asset reductions, the Wall Street Journal reported late Tuesday. Separately, the bank could be downsized if it fails to raise capital, Reuters reported. First Republic may need government support to secure a deal, Bloomberg reported on Tuesday.
Last week, First Republic received a $30 billion rescue deposit from 11 of America’s largest banks. And JP Morgan (JPM) CEO Jamie Dimon is leading discussions for a new recovery plan. S&P Global downgraded the republic to junk status on Sunday, marking its second downgrade in a week. Moody’s and Fitch downgraded their First Republic ratings last week.
FRC shares fell 2.5% on Wednesday after rising 30% on Tuesday.
Silicon Valley Bank’s Former Parent Says FDIC Seized $2 Billion
SVB Financial held its first bankruptcy court hearing on Tuesday after filing for Chapter 11 protection on Friday. During the investigation, the former parent company of failed Silicon Valley Bank said the FDIC improperly blocked access to about $1.9 billion stored at Silicon Valley Bank’s regulator-controlled successor, Silicon Valley Bridge Bank NA, the WSJ reported. .
SVB also cut off FDIC communications and ordered Bridge Bank to reverse the transfers made to SVB Financial’s other bank accounts.
On March 16, the FDIC transferred SVB Financial’s funds to an account it controls while the regulator investigates possible claims against SVB, according to bankruptcy filings.
If the FDIC’s claims against SVB Financial and its assets are successful, it could erode the amount owed to the company’s unsecured bondholders.
Charles swap price target cut
Barclays cut its price target Charles Schwab (BlackShares were down from $79 on Monday to $61, but maintained an equal weight rating on the stock. In the wake of SVB Financial and the recent banking turmoil, Barclays believes short-term cash borrowing will drive balance sheet growth for fiscal 2023 and 2024.
Meanwhile, the company raised its price target Coinbase (currency) shares rose to $86 from $63 on Monday as banks face headwinds in the coming fiscal years.
SCHW stock fell 4.4% on Wednesday, while COIN stock fell 3%.
Los Angeles-based PacWest Bancorp said Monday that it “would not be prudent” to move forward with plans to raise additional capital. PacWest took steps to increase its liquidity and stabilize deposit levels, including raising capital from potential investors.
Backwest secured a $1.4 billion credit facility Apollo Global Management (APO)-backed investment firm Atlas SP Partners. The company said the moves “opened liquidity from non-encumbered, high-quality assets in a rapid manner.”
The bank has borrowed $3.7 billion from the Federal Home Loan Bank, $10.5 billion from the Federal Reserve’s discount window and $2.1 billion from the bank’s term financing program through March 20.
PacWest reported $27.1 billion in deposits as of March 20, down 20% from $33.9 billion at the end of December. As of Monday, PacWest listed $11.4 billion in available cash with $9.5 billion in uninsured deposits. Currently, its FDIC-insured deposits account for more than 65% of total deposits.
PacWest’s FDIC-insured venture-specific deposits account for more than 82% of all venture-specific deposits. The bank has another $600 million in deposits backed by marketable securities. PacWest’s spot deposit rate increased to 2.04% on March 20, from 1.71% on December 31.
“I am proud of the efforts of the entire Baywest team during these challenging times to increase our cash flow and protect franchise value,” said CEO Paul Taylor. “As we look ahead, we continue to be confident in PacWest’s strength and are encouraged by the stability we have seen in our deposits and liquidity over the past week.”
Taylor said government and regulatory news, including Secretary Yellen’s comments on protecting small bank depositors, was encouraging.
PACW stock fell about 8% on Wednesday following the news, giving back some of its 18.8% gains since Tuesday.
You can follow Harrison Miller on Twitter for more stock news and updates @IBD_Harrison
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