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Traders work on the floor of the New York Stock Exchange.
Brendan McDiarmid | Reuters
After a few intense days he witnessed the fate of the moneylender’s illness The first republic Decided finally, a veteran banking analyst Christopher McGraty He was looking forward to some calm.
Early Tuesday, more than 24 hours after US regulators seized and selected First Republic. c. B. Morgan Chase To acquire most of her assets, McGraty headed to see a client in Manhattan. Minutes after the regular trading began, the shares of the regional banks he covered for KBW began to fall.
“I was like, ‘Hey, it’s a good day to catch up, looks like an organized day,'” McGraty said in a phone interview. “I went back to my desk, had 40 emails and 10 voicemails, and my screen was all red.”
A sharp sell-off in regional banks sparked by the Silicon Valley bank failure resumed in March, catching Wall Street analysts and investors by surprise. An orderly dissolution of First Republic by the nation’s largest lender was supposed to assuage concerns about the state of the American banking system, not reignite them.
sharp dips – backquest Shares fell 28% to a record low on Tuesday, while Western alliance Lost 15% Amid the lack of fresh news, banking experts scrutinized why this happened.
Concerns about uninsured deposits, concerns about commercial real estate and upcoming regulation were all potential catalysts.
Others pointed to pressure from short sellers. That’s what Peter OrsageCEO of Financial Advisors Lazard who represented the First Republic in the rescue effort, Sarah Eisen said on CNBC Tuesday.
“People are looking for answers, and no one has a good answer,” said McGarty, KBW’s head of US banking research who has covered the industry for nearly 20 years.
March mad
PacWest and Western Alliance recently disclosed first-quarter results and numbers updated through mid-April that initially calmed investor concerns about deposit outflows. But he said the current moment is more about human emotions than the way banks are valued in normal times.
“The market is looking for the next potential domino” to drop after the SVB forfeiture, said mcgraty sign and the first republic.
He added, “We are in this situation that feels a lot like March, where we trade stocks based on fear and sentiment rather than fundamentals.”
This does not make the risk to medium-sized banks any less real. The pressure on bank stocks could cause customers to withdraw deposits again from their institutions, according to analysts including McGratty and John Pancari of Evercore ISI.
“While we are confident in banks’ liquidity and capital levels after the first quarter, we cannot ignore the risk that market pressures on bank equity valuations could fuel a self-fulfilling prophecy,” Bankari said Tuesday in a research note.
On Wednesday, shares of PacWest and Western Alliance rebounded somewhat. The KBW Regional Banking Index also rose.
more fragile
The events of March showed that banks can fail faster than anyone expected.
Digital banking tools and fears stoked by social media have given the wheel a boost Deposit trip at banks including SVB, as customers attempted to withdraw more than $140 billion in deposits over two days.
That’s why McGraty, who says he still bears scars from the 2008 financial crisis, says the current turmoil is scarier than it was 15 years ago in at least one important way.
He said the bad loans that were at the root of past crises could take months to bring down a bank.
But he said a customer-led run on deposits “can kill you in 36 hours, like what happened at SVB”. “It just shows you how fragile everything is.”
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