First Republic shares plunge on fear of contagion, dragging US regional banks

March 13 (Reuters) – Shares of U.S. regional banks tumbled on Monday, led by steep losses at First Republic Bank (FRC.N), as news of new funding failed to quell fears of a possible banking contagion following the collapse of SVB Financial Group (SIVB.O) and Signature Bank (SBNY.O).

San Francisco-based First Republic was able to meet withdrawal requests with additional funding from JPMorgan Chase & Co (JPM.N), the mid-cap lender’s executive chairman, Jim Herbert, told CNBC.

Herbert’s comments, however, did little to keep the stock afloat. There were several trading stops as the shares fell, the latest down 67% to $28.05.

In response to questions from Reuters, a bank spokesman said the bank “continues to fully support the needs of our customers by opening accounts, making loans, executing transactions…in our offices and on line”.

Other regional lenders also fell, with Western Alliance (WAL.N), KeyCorp (KEY.N), Comerica Inc (CMA.N), Huntington Bancshares Inc (HBAN.O) and PacWest Bancorp (PACW.O) in down 16%. and 29%.

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There were several trading halts in banking stocks, with the KBW Regional Banking Index (.KRX) down 5.4% and the S&P 500 Banking Index (.SPXBK) down 6%.

“The real problem 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,” said Christopher McGratty, head of US banking research at KBW investment bank.

US President Joe Biden has promised to do whatever is necessary to deal with a possible banking crisis. On Sunday, national regulators took emergency action to maintain confidence in the system, and the First Republic secured additional funding through JPMorgan and the US Federal Reserve, accessing a total of $70 billion in funds.

Despite the cash injection, Raymond James twice downgraded the bank’s shares, highlighting the risk of deposit outflows the First Republic faces from large depositors panicking after the bank run at the SVB.

Founded in 1985, First Republic had $212 billion in assets and $176.4 billion in deposits at the end of last year, according to its annual report.

About 70% of its deposits are uninsured, which is above the median of 55% for midsize banks and the third highest in the group after Silicon Valley Bank and Signature Bank, according to a note from Bank of America.

Bank of America cut its price target on the stock to $90 from $140.

The bank rout, which follows several Fed interest rate hikes over the past year, has pushed 2-year Treasury yields the most since the 2008 financial crisis.

Art Hogan, chief market strategist at B. Riley Wealth, said the market is “finding out in real time what the risk of rising interest rates at such a rapid pace can do to the balance sheets of some of the regional banks.” “.

Hogan said each regional bank has its own exposure to different parts of the market. “For example, if you are a regional bank exposed to commercial real estate, well, office real estate is not an advantage… during the energy crisis, you saw all the regional banks of Texas face pressure because of their exposure to oil.

He added that the fate of regional bank stocks will be “on a case-by-case basis”, with investors looking to determine which may have the most negative exposure. Other traders wondered if the panic could become self-fulfilling, pushing people to transfer funds from smaller lenders to bigger banks.

Among Wall Street lenders, Bank of America Corp (BAC.N) fell 3.3%, Citigroup Inc (CN) and Wells Fargo (WFC.N) fell around 6% each, while lenders in Asia and Europe also plunged.

The U.S. system of Federal Home Loan Banks (FHLB), which lends to member banks and other financial institutions primarily to help them provide consumer mortgages, is seeking to raise about $64 billion by selling short-term notes, reported Bloomberg News.

Reporting by Medha Singh in Bengaluru, Tatiana Bautzer in New York; Editing by Shinjini Ganguli and David Gregorio

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