Shares of several regional lenders fell Monday after the collapse of First Republic Bank, the third major victim of the biggest crisis to hit the US 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 fueling 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 bankruptcy of First Republic, following the announcement that JPMorgan Chase has bought the bank.
Regional bank stocks fell Monday after the collapse of First Republic Bank. Pictured: First Republic Bank in San Francisco
Earlier Monday, a deal was announced that will allow for an orderly failure of First Republic, following the announcement that JPMorgan Chase has bought the bank
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 SPDR S&P Regional Banking ETF – a measure of near-term expected price movements – falling about 2 points from Monday’s the 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 address 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 formidable challenge due to the US Federal Reserve’s aggressive monetary policy tightening.
Their portfolios are now worth much less than they valued them on 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 ever. Yet, unlike Silicon Valley Bank and Signature Bank, the FDIC had a purchase in the wings,” Barclays analysts said.
Jamie Dimon, chief executive officer of JPMorgan Chase & Co, who said of the purchase of First Republic: ‘Our government invited us and others to act, and we did’
JPMorgan Chase took control of First Republic after its shares plummeted in recent days
Last week, First Republic announced that it had lost more than $100 billion in deposits in the first quarter, causing its shares to plummet.
The bankrupt bank’s 84 offices in eight states will reopen Monday as branches of JPMorgan Chase Bank, a statement said.
Jamie Dimon, chief executive officer of JPMorgan Chase & Co, who said of the purchase of First Republic: ‘Our government invited us and others to act, and we did’
The deal for First Republic, which had total assets of $229.1 billion as of April 13, comes less than two months after Silicon Valley Bank and Signature Bank failed in early March amid a deposit flight from U.S. lenders, forcing the Federal Reserve to intervene with emergency measures to stabilize markets.
Those failures came after crypto-focused Silvergate voluntarily liquidated.
Acquired First Republic companies will be overseen by JPMorgan Chase’s Consumer and Community Banking (CCB) Co-CEOs, Marianne Lake and Jennifer Piepszak.
First Republic is the third bank to fail this year, raising concerns about further problems in the industry
In a statement, they said: ‘First Republic has built a strong reputation for serving customers with integrity and exceptional service.
“We look forward to welcoming First Republic employees. As always, we are committed to treating employees with respect, care and transparency.”
First Republic has struggled with high levels of uninsured deposits since the collapses of Silicon Valley Bank and Signature Bank, as investors and depositors grew increasingly concerned that the bank would not survive as an independent entity.
Global markets have regularly been rocked by concerns about banking sector turmoil since the collapse of Silicon Valley Bank.
First Republic was seen as the bank most likely to collapse due to its high amount of uninsured deposits and exposure to low-interest loans.
But before Silicon Valley Bank went bankrupt, First Republic had a banking franchise that most of the industry envied.
Its clients – usually the wealthy and powerful – rarely defaulted on their loans.
The 72-branch bank has made much of its money by providing cheap loans to the wealthy, reportedly including Meta Platforms CEO Mark Zuckerberg.