Shares of First Republic Bank and other US-based regional lenders were poised for a bounce on Tuesday despite Moody’s Investors Service announcing that it would scrutinize financial institutions for a potential downgrade.
The credit rating agency put First Republic as well as five other regional banks under review, citing concerns that they were relying too much on uninsured deposit funding and unrealized losses, according to Bloomberg News.
Moody’s, which gauges credit ratings and provides risk assessment to investors in the capital markets, said late Monday that First Republic was vulnerable to large, rapid withdrawals of cash due to its overreliance on depositors whose accounts exceed the $250,000 federal insurance threshold.
“If it were to face higher-than-anticipated deposit outflows and liquidity backstops proved insufficient, the bank could need to sell assets, thus crystalizing unrealized losses,” the risk management firm said of First Republic.
Investors on Wall Street appear ready to shrug off the Moody’s warning after watching the stocks get hammered badly on Monday.
First Republic shares were up by some 20% in pre-market trading on Tuesday while PacWest stock surged by almost 30%. KeyCorp was up 15% in pre-opening bell activity while Zions Bancorp saw a 10% jump early Tuesday morning.
Moody’s had downgraded Silicon Valley Bank’s credit more than a week before the tech-centric lender imploded.
In response to Moody’s note, SVB then tried to sell $2 billion worth of its investments at a loss in hopes of shoring up its balance sheet — fueling alarm among investors and triggering a run on the bank.
On Monday, Moody’s disclosed its possible downgrades just hours after blue-chip stocks in the banking sector saw double-digit losses in the wake of the collapse of Silicon Valley Bank as well as Signature Bank.
First Republic, the San Francisco-based lender with more than $271 billion in assets under management, saw its stock price tank by a record 62% on Monday.
That was despite First Republic disclosing on Sunday that it secured additional financing from JPMorgan Chase, giving it access to some $70 billion in funds.
In a statement, First Republic said additional borrowing capacity from the Federal Reserve as well as that from JPMorgan had boosted the amount of liquidity it had available.
“First Republic’s capital and liquidity positions are very strong, and its capital remains well above the regulatory threshold for well-capitalized banks,” the bank said in a statement.
“First Republic continues to fund loans, process transactions and fully serve the needs of clients by delivering exceptional service.”
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Michael Burry, the investor featured in the hit film “The Big Short,” believes the worst is behind us and that the crisis triggered by the fall of SVB could resolve “very quickly.”
“I am not seeing any true danger here,” Burry, who made his fortune by being among the first to accurately predict the 2008 subprime mortgage crisis, tweeted on Monday.
The observation from Burry, who appears to have deleted his tweet, was cited on Monday by Bloomberg News.
Western Alliance, the Phoenix-based bank, fell by 47%, an all-time one-day low, on Monday.
Comerica, the lender which is headquartered in Dallas, also saw its stock price nosedive by 28% on Monday.
SVB, which until recently was the nation’s 16th-largest bank with $209 billion in assets under management, had a reputation as the go-to lender for venture capital firms and tech startups.
The reverberations of SVB’s collapse were felt over the weekend, when regulators closed down Signature Bank, which had been heavily invested in the struggling cryptocurrency sector.
The Federal Reserve said it will create a new Bank Term Funding Program to offer depository institutions loans of up to one year, backed by US Treasury securities and other assets, to help the banks.
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