First Republic jumps 20% as it leads comeback rally in US regional banks

First Republic jumped more than 20 percent in premarket action this morning as it led a rally in regional US banks amid widespread uncertainty in the sector.

Shares of the San Francisco-based lender last traded at $15.67 after closing at $12.18 on Monday when it was locked out of a broader rally, even as major US banks pumped $30 billion into their stocks. coffers.

The SPDR S&P Regional Banking ETF, a key metric for monitoring the sector, was up more than 4 percent in pre-bell trading.

But the upward swings will do little to ease the fears of many cautious investors after the collapse of Silicon Valley Bank, New York-based Signature and global investment firm Credit Suisse.

Michael Wilson, the chief US equity strategist at Morgan Stanley, warned that the chaos may already have brought a “vicious” end to the bear market.

Shares of the San Francisco lending institution last traded at $15.67 after closing at $12.18 on Monday when it was locked out of a broader rally, even as major US banks pumped $30 billion into their coffers.

Michael Wilson, the chief US equity strategist at Morgan Stanley, warned that the chaos may already have brought a “vicious” end to the bear market. “This is exactly how bear markets end: an unforeseen catalyst that is obvious in hindsight forces market participants to recognize what has been in front of them all along,” he wrote in an analyst note Monday.

“This is exactly how bear markets end: an unforeseen catalyst that is obvious in hindsight forces market participants to recognize what has been in front of them all along,” he wrote in an analyst note Monday.

Wilson continued: ‘The last part of the bear can be vicious and highly correlated. Prices fall sharply through a spike in equity risk premium that is very difficult to prevent or defend in one’s portfolio.

He said it’s not worth buying S&P 500 shares until this stock risk premium, which measures the performance of stocks against risk-free assets like bonds, rises.

ERP is currently at 230 basis points, but Wilson says it will go above 250.

“We’ve been patiently waiting for this recognition because it comes with the real buying opportunity,” Wilson said. “Given the risk to the earnings outlook, the risk/reward ratio in US equities remains unattractive until the ERP is at least 350-400 basis points, in our view.”

JPMorgan Chase & Co is advising First Republic on its options for raising capital from investors, a source said Monday.

Another report on Monday said JPMorgan CEO Jamie Dimon is leading talks with the heads of other big banks about further efforts to stabilize the bank.

First Republic’s market capitalization has dipped to $2.2 billion from around $22.5 billion in 14 sessions this month.

Other regional lenders scored more, with PacWest Bancorp and Western Alliance Bancorp adding about 7 percent each.

Contagion risks at regional US banks last week drove investors out of the sector at the fastest pace since Russia’s invasion of Ukraine, a Bank of America Survey of Global Fund Managers showed.

First Republic bonds due 2047 recovered 4 cents on the dollar to trade at 59 cents after closing at a record low on Monday.

Those notes were trading at 83 cents on the dollar a day before Silicon Valley Bank was shut down on March 10.

A bank customer at 79th and Lexington in Manhattan on Monday

First Republic was the most traded stock on Fidelity’s platform on Monday, indicating interest from retail traders.

The dollar fell and sterling stabilized today as traders bet that banking stress would prevent the Fed from continuing its aggressive rate hikes.

Markets are pricing in an 85 percent chance of a 25bp hike when the Fed announces its policy decision on Wednesday. The peak of the Fed’s hikes was seen at 5.5% just a few weeks ago, up from 4.8% today.

The dollar has followed those expectations lower, although general jitters in financial markets have dampened selling.

“Volatility in rates and broader asset markets has been extraordinary recently,” said John Velis, FX and Americas macro strategist at BNY Mellon, prompting “substantial repricing” of future rate increases.