Large and Regional Banks Selloff Drives Market Indexes Down On Wall Street

Barry Adams
17 Mar, 2023
New York City

Stocks turned lower on Friday and investors digested the latest move by big banks to shore up confidence in regional banks. 

The largest 11 banks on Thursday pledged to deposit $30 billion for the next 120 days only with First Republic Bank, the move was partly driven by self preservation. 

Big bank's move was orchestrated by the FDIC, Federal Reserve, U.S. Treasury and Office of Comptroller in an effort to revive the flagging support and prevent a run on the bank before it happens and avoid the perception of a government bailout.  

Despite the announcement, First Republic Bank plunged 20% after investors looked for details on how and how much interest rate the bank will pay on these new deposits. 

The joint statement from the eleven banks is short on details. 

First Republic Bank said in a filing with the Securities and Exchange Commission "on March 9, 2023, the bank has also increased short-term borrowings from the Federal Home Loan Bank by $10 billion at a rate of 5.09%."

In Friday's trading, size of the bank did not matter and large and mid-sized banks declined amid lingering concerns about the health of the U.S. banking system. 

JPMorgan Chase, Wells Fargo, Bank of America, PNC Bank, US Bancorp and Truist financial Corp declined between 3% and 7%. 

U.S. banks are sitting on $620 billion of unrecognized losses as of the end of 2022, reflecting a 28% loss of unrealized equity capital in the banking system. 

Moreover, in the first quarter of 2023, the yields on Treasury bonds have risen, generating additional losses for banks of all sizes holding long and short-dated U.S. Treasury securities. 

If the Federal Funds rates are increased to 6%, total unrealized equity capital loss across all banks could rise to 50%, effectively endangering the entire U.S. banking system. 

The rapid collapse of Silicon Valley Bank is raising questions about how prepared banks are in facing swift departure of bank deposits in the world of online banking. 

Silicon Valley Bank lost 25% or $42 billion of deposits in less than eight hours, after a bank run was started by the venture capitalists community. 

 

Indexes & Yields 

The S&P 500 index decreased 1.2% to 3,910.39 and the Nasdaq Composite index dropped 1% to 11,593.23.

The yield on 2-year Treasury notes inched lower to 3.96%, 10-year Treasury notes to 3.40% and 30-year Treasury bonds dropped to 3.60%. 

Crude oil price for immediate month delivery decreased $2.30 to $66.93 a barrel and natural gas price fell 15 cents to $2.35 a thermal unit.

 

U.S. Stock Movers  

First Republic Bank declined 23.7% to $26.16 despite 11 largest banks pledged to deposit $30 billion in the embattled bank in a show of support and prevent a run on the bank. 

Western Alliance Bancorp dropped 18% to $30.28, Zions Bancorporation fell 5.5% to $30.39 and KeyCorp declined 6.6% to $11.47. 

FedEx Corp increased 7.8% to $220.24 after the parcel delivery company revised higher its fiscal year outlook. 

Revenue in the quarter ended in February declined to $22.2 billion from $23.6 billion and net income fell to $771 million from $1.1 billion and diluted earnings per share dropped to $3.05 from $4.20 a year ago.  

The parcel delivery company completed a repurchase of 9.2 million shares in the fiscal third quarter. 

The company lifted its fiscal year 2023 diluted earnings per share forecast in the range of  $13.80 to $14.40 before the mark-to-market retirement  plans accounting adjustments, compared to the prior forecast of $12.50 to  $13.50 a share. 

The company estimated fiscal year capital spending of $5.9 billion.