First Republic leads a comeback for bank stocks that cratered in the SVB-fueled selloff
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- US regional bank stocks rose Tuesday as nerves calmed about a Silicon Valley Bank-fueled crisis.
- The failure of SVB rattled markets thanks to fears the turmoil would spread to other lenders.
- First Republic's shares jumped over 50% in premarket trading, while Western Alliance also gained.
Regional bank stocks staged a comeback in premarket trading Tuesday, as investors started to feel reassured that the collapse of Silicon Valley Bank won't trigger a broader financial crisis.
San Francisco-based First Republic's shares jumped 49% to reach $46.61 at last check. Meanwhile, Beverly Hills' PacWest was up 33% at $13.01 and Arizona's Western Alliance added 38% at $36.13.
The three bank stocks are rebounding from a rout Monday, when they were dragged down by fears about the fallout from SVB's collapse. First Republic plunged to close 62% lower in the session, while PacWest shed 21%, and Western Alliance lost 47%.
The recovery comes after authorities scrambled to contain the turmoil. Investors' nerves appear to have been calmed by regulators' actions, President Joe Biden's soothing words, and the banks' own efforts to bolster their liquidity after the failure of SVB threatened to snowball into a broader crisis.
"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," Wells Fargo Investment Institute strategist Gary Schlossberg said, per Bloomberg.
"There has been no foot-dragging by the government, we could even see more steps down the road to stabilize the system," he added.
The Federal Reserve brought in extraordinary measures on Sunday after SVB, Signature Bank, and Silvergate Capital all struggled with financial troubles last week. It set up a "Bank Term Funding Program" that'll offer struggling institutions a one-year loan of up to $25 billion under easier terms than usual.
Biden then made a speech from the White House on Monday, where he promised American depositors they'd be able to get their money back if their bank collapsed, helping to calm fears of potential widespread bank runs.
"Today, thanks to the quick action of my administration over the past few days, Americans can have confidence that the banking system is safe," he said. "Your deposits will be there when you need them."
Regional banks took steps to show they had enough liquidity to endure a broader crisis. First Republic said Sunday that it had secured an additional $70 billion in financing from the Fed and JPMorgan, while Western Alliance disclosed Monday that its cash reserves were worth over $25 billion.
Even so, Moody's placed both First Republic and Western Alliance on downgrade watch on Monday. The ratings agency warned they and four other small lenders were vulnerable to potential bank runs.
Other regional banks looked set to come back from losses Tuesday. Cleveland's KeyCorp was up 16% in premarket, while Dallas's Comerica climbed 13%, and Columbus's Huntington Bancshares added 7%.
Meanwhile, the US's "big four" lenders — which shed $55 billion worth of market value the day SVB collapsed — also moved higher ahead of the opening bell. JPMorgan and Bank of America both put on 2%, while Wells Fargo and Morgan Stanley were each up 4% at last check.
The Tuesday rally is another hopeful sign for markets. "Big Short" investor Michael Burry has said he believes there's little risk of contagion from SVB's collapse for other stocks.
"The crisis could resolve very quickly," he said Monday in a now-deleted Tweet. "I am not seeing true danger here."
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