Treasury Secretary Janet Yellen assured Congress that the banking system remains sound during testimony on Thursday. Meanwhile, bank stocks declined on Thursday after US financial institutions took a beating on Wednesday.
Regional banks led by losses in early trade First Republic Bank ,FRC) as it explores strategic options including a possible sale, Bloomberg reported late Wednesday. On Thursday JPMorgan and several large firms discussed possible deals with First Republic. Big banks narrowed losses after their comeback on Tuesday.
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Secretary Yellen is set to testify before the Senate Finance Committee beginning at 10 a.m. ET. According to prepared remarks, he is expected to tell Congress that “our banking system remains sound, and Americans can feel confident that their deposits will be there.” Yellen will also highlight Federal Reserve and FDIC plans to support the banking system, including new lending facilities.
Big banks discuss First Republic deal
On Thursday, JP Morgan, Morgan Stanley ,M / sThe Wall Street Journal reported that ) and several other large banks discussed a possible deal with First Republic that could involve a large capital injection.
First Republic Bank stock soared more than 31% in early Thursday trading after Bloomberg reported the San Francisco-based organization is exploring strategic options to increase liquidity, including raising capital and a possible sale. However, as the WSJ reports, a full acquisition looks unlikely at this point.
FRC stock is down about 75% so far this month after the closures of Silicon Valley Bank and Signature Bank triggered the bank crisis.
On Wednesday, ratings agencies S&P Global and Fitch downgraded First Republic, citing liquidity and funding risks. S&P downgraded FRC stock to speculative-grade BB+ from its previous A- rating. Fitch assigned First Republic a BB grade below A-, and kept the bank at a negative rating. Moody’s announced Monday that it is reviewing First Republic and five other regional banks for a possible downgrade.
The news marks a dramatic turn for the First Republic. On Sunday, it secured additional liquidity from the Federal Reserve Bank and JP Morgan ,jpm), bringing the total available funds to over $70 billion. First Republic CEO Jim Herbert told Jim Cramer that the bank is operating “business as usual” on Monday. At the time, Herbert noted that the bank was looking at withdrawals of no more than $250,000, and was working out additional funds from JPMorgan.
“First Republic’s capital and liquidity position is very strong, and its capital is well above regulatory limits for well-capitalized banks,” CEO Jim Herbert said in the funding announcement.
bank stocks
Regional banks followed First Republic early Thursday. Located in Beverly Hills, California pacific west bank ,pacw) opened with a loss of 18%. zions bancorp ,Zion) fell 3.8% in the morning. western alliance ,wall) fell more than 5.8%, nearly erasing Wednesday’s 8.3% rebound.
JPMorgan rose 0.4% on Thursday after falling 4.7% on Tuesday. Wells Fargo ,wfc) inched 0.3% higher after a 3.2% dive on Wednesday. Goldman Sachs ,g s) traded down 0.4% after falling 3% on Wednesday.
Credit Suisse returned 7% after injecting $54 billion from the Swiss National Bank into American Depository Receipts. Credit Suisse ADRs fell as much as 30% on Wednesday.
You can follow Harrison Miller for more stock news and updates on Twitter @IBD_Harrison
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