First Republic collapse sparks regional bank shares sell-off

With the third major accident since March, savers are fleeing regional lenders, raising fears for other smaller banks.

Shares of several regional lenders fell Monday following the collapse of First Republic Bank, the third major victim of the biggest crisis to hit the United States banking sector since 2008.

The banking turmoil erupted after the closure of Silicon Valley Bank and Signature Bank in March, prompting savers to flee regional lenders and raising fears that the crisis could engulf other medium-sized banks.

The KBW Regional Banking Index lost 2.7 percent on Monday to hit a session low, while shares of Citizens Financial Group, PNC Financial Services Group, Truit Financial Corp and US Bancorp fell between 3 percent and 7 percent. Valley National Bankcorp, which owns Valley National Bank, lost more than 20 percent.

Earlier Monday, a deal was announced that will allow for an orderly failure of First Republic. Under the terms, JPMorgan Chase & Co will pay $10.6 billion to the US Federal Deposit Insurance Corp (FDIC), which has placed First Republic in receivership, for most of the bankrupt bank’s assets.

Shares of JPMorgan Chase rose 2.14 percent, making the largest U.S. bank the biggest gainer on the Dow Jones. In the options market, traders continued to be cautious on most regional banks, with 30-day implied volatility on the S&P Regional Banking ETF – a measure of near-term expected price movements – falling about 2 points against the benchmark on Monday. week before.

“This deal does not change the rates, recession and regulatory headwinds facing regional banks,” said UBS analyst Erika Najarian, but added that it is an elegant solution that should allay investors’ outstanding concerns about liquidity.

Mid-cap banks, which have parked customer deposits in interest-rate sensitive investment portfolios such as mortgage bonds, also face a huge challenge due to aggressive monetary tightening by the US Federal Reserve. Their portfolios are now worth much less than the value in their books.

While investors took with a grain of salt the bailout planned by regulators for First Republic’s assets over the weekend, Wall Street analysts were largely bullish on the deal.

“This marks [the] second-biggest failure on record. Yet, unlike Silicon Valley Bank and Signature Bank, the FDIC had a purchase in the wings,” Barclays analysts said.