By Steve Gelsi
The health of the U.S. banking sector remains in focus as pundits weigh in and liquidity issues swirl
U.S. bank stocks continued to draw attention of investors on Thursday as pundits downplayed recent bank failures and a bailout for banking giant Credit Suisse provided a lift.
U.S. Treasury Secretary Janet Yellen on Thursday will tell senators that the U.S. banking system is on solid footing and that Americans can be confident about their deposits, according to her testimony prepared for her appearance at the Senate Finance Committee.
Former Treasury Secretary Larry Summers told CNN that the current situation is not another Global Financial Crisis that shook the world after Lehman Brothers collapsed nearly 15 years ago.
“I don’t think this is a time for panic or alarm,” Summers said. “This is not 2008, where people needed to be worried about whether they could get their money, from the ATM machine. It absolutely is not that.”
U.S. megabank stocks edged up in pre-market trades after losses in the previous session, as ailing giant Credit Suisse (CSGN.EB) said it lined up $54 billion in credit from Swiss National Bank (SNB) and acquire beaten-up debt.
U.S.-listed shares of Credit Suisse rose 5% in premarket trades, a day after the stock fell 13.9%.
JPMorgan Chase & Co. (JPM) rose 0.3% in premarket trades, while Morgan Stanley (MS) rose 0.1% and Citigroup Inc. (C) rose 0.5%. Bank of America (BAC) rose 0.3% and Wells Fargo & Co. (WFC) added 0.4%.
Goldman Sachs Group Inc. (GS) fell 0.2%. The Wall Street Journal reported that Goldman Sachs underestimated the danger that a proposed $2.25 billion capital raise at Silicon Valley Bank could spark a crisis of confidence and a further run on deposits. The bank went out of business on Friday, sparking widespread concerns in the sector.
Meanwhile, KBW Managing Director David Konrad said Thursday that the failures of Silicon Valley Bank, Silvergate Bank and Signature Bank in the past week are likely to result in increased regulations over time and may in turn impact industry profitability.
Sen. Elizabeth Warren on Wednesday reiterated her criticism of the 2018 easing of Dodd-Frank rules for small and midsize banks after joining with dozens of fellow Democratic lawmakers to introduce a bill that would scrap that rollback in the wake of Silicon Valley Bank’s collapse.
First Republic (FRC) tumbled another 27% in premarket trade amid reports it’s exploring its strategic options, including a potential sale of the company.
Western Alliance Bancorp stock (WAL) fell 8% in premarket trades after credit rating agency Fitch Ratings placed the company’s debt and deposit ratings on rating watch negative.
Fitch analysts said current market conditions “have created liquidity stresses outside the baseline assumptions.”
Fitch said it’s considering the assignment of a negative or stable outlook depending on market conditions and the impact to the bank’s deposit franchise, long-term earning power and capitalization.
Fitch noted Western Alliance Bancorp reported cash reserves of $25 billion in a March 13 filing. The company’s cash is equivalent to about 47% of total deposits reported as of Dec. 31.
The company also “communicated moderate deposit outflows and insured deposits in excess of 50% of total deposits,” Fitch said.
The ratings agency said the Federal Reserve Bank’s Bank Term Funding Program “provides a further liquidity backstop at favorable terms” for Western Alliance Bancorp.
This facility set up after the collapse of two U.S. banks last week could see up to $2 trillion of use, according to a new analysis at JPMorgan.
JPMorgan analyst Nikolaos Panigirtzoglou said six regional banks on their own have a combined $460 billion of uninsured deposits. Some $2 trillion is the par amount of bonds held by U.S. banks outside the five largest.
Charles Schwab Corp. (SCHW) rose 0.3%. Executives and directors at Charles Schwab Corp. bought nearly $7 million worth of the financial-services company’s beaten-down stock Tuesday and Wednesday in an apparent vote of confidence in the company’s ability to weather the ongoing bank rout.
Jefferies analyst Ken Usdin said in a note to clients Thursday that he met with Citigroup Chief Financial Officer Mark Mason and that the company remains in a strong position despite a more uncertain operating environment.
Citi is sticking to its target for return on average tangible common shareholders’ equity (ROTCE) of 11% to 12%, he said. ROTCE is calculated by dividing net earnings applicable to common shareholders by average monthly tangible common shareholders’ equity.
Citi continues to benefit from high capital levels, ample liquidity and “sticky” operational deposits, Usdin said.
“While Citi is mindful of the more uncertain operating environment and current volatility, the bank’s overall strategic plan is intact, including its divestiture strategy, growth priorities, and cost reduction plans,” Usdin said.
Also Read:New Fed bank facility could see up to $2 trillion of usage, JPMorgan analysts say
-Steve Gelsi
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03-16-23 0933ET
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