Regional US bank stocks rallied on Tuesday, set to claw back some losses from the six-day selloff seen in the wake of Silicon Valley Bank’s collapse, as concern eased about wider contagion in the financial system.
(Bloomberg) — Regional US bank stocks rallied on Tuesday, set to claw back some losses from the six-day selloff seen in the wake of Silicon Valley Bank’s collapse, as concern eased about wider contagion in the financial system.
First Republic Bank jumped as much as 28% in US premarket trading, after a record 62% plunge on Monday, while peer PacWest Bancorp surged 40% and Western Alliance Bancorp rose 22%. Bigger lenders such as Bank of America Corp. and Citigroup Inc. also advanced.
“Once we move away from initial shock rather than painting everyone with the same brush, there is a tendency to scrutinize the models a bit more, the banks’ deposit bases and access to liquidity,” said Gary Schlossberg, global strategist at Wells Fargo Investment Institute. “There has been no foot-dragging by the government, we could even see more steps down the road to stabilize the system.”
The selloff will “certainly be contained,” if there is a suggestion that Fed policy is shifting a bit, he added.
Regulators stepped in with extraordinary measures, introducing a backstop for banks to protect the whole nation’s deposits, after the swift demise of three banks. Regional banks suffered the most on fears of a customer exodus to bigger lenders, perceived as safer for deposits.
Investor Michael Burry, who rightly predicted the 2008 housing crash, said he believes the spreading crisis following the collapse of Silicon Valley Bank could resolve “very quickly” and that he doesn’t see any “true danger.”
Meanwhile, Moody’s Investors Service placed First Republic Bank and five other US lenders on review for downgrade, the latest sign of concern over the health of regional financial firms.
The KBW Bank Index, one of the main gauges for the financial industry, fell for six straight sessions through Monday and lost a quarter of its value, extending declines even after regulatory intervention was announced over the weekend. That’s set to pause on Tuesday, ahead of closely watched data on US consumer prices.
“The bloom seems to be coming off the strong start to 2023,” said Citi strategist Matt King, adding that the greater optimism seen in markets than in the real economy was fading. “The reason is not only SVB.”
–With assistance from Alexandra Muller and Jan-Patrick Barnert.
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