Regional Bank Shares Experience Decline Following First Republic Collapse

Shares of several regional banks witnessed a decline on Monday in the aftermath of the collapse of First Republic Bank, marking the third major casualty in the recent crisis that has impacted the United States banking sector.

The banking turmoil originated from the closure of Silicon Valley Bank and Signature Bank in March, leading depositors to withdraw from regional banks and sparking concerns that the crisis might extend to other midsize banks.

On Monday, the KBW Regional Banking Index experienced a 2.7 percent drop, reaching a session low. Shares of various financial institutions, including Citizens Financial Group, PNC Financial Services Group, Truist Financial Corp, and US Bancorp, registered declines ranging from 3 percent to 7 percent. Valley National Bankcorp, the owner of Valley National Bank, saw a loss exceeding 20 percent.

An orderly failure of First Republic was announced earlier in the day, with JPMorgan Chase & Co set to pay $10.6 billion to the US Federal Deposit Insurance Corp (FDIC) for most of the failed bank’s assets. JPMorgan Chase emerged as the top gainer on the Dow Jones, with its shares rising 2.14 percent.

While the deal provided a resolution to outstanding investor concerns over liquidity, UBS analyst Erika Najarian noted that it does not alter the challenges faced by regional banks, including issues related to interest rates, recession, and regulatory pressures.

Mid-cap banks, particularly those with deposits in interest rate-sensitive portfolios like mortgage bonds, are grappling with challenges due to the aggressive monetary policy tightening by the US Federal Reserve. Their portfolios are currently valued lower than their book values.

Despite some caution among investors, Wall Street analysts generally viewed the engineered rescue for First Republic’s assets positively. Barclays analysts noted that, unlike Silicon Valley Bank and Signature Bank, the FDIC had a buyer in place, making it the second-largest failure on record.

As the banking sector navigates through these challenges, analysts remain watchful of potential implications on regional banks, emphasizing the need for ongoing monitoring of market dynamics.