US regional banks First Republic and PacWest sank

The overnight action by American regulators in the the financial system is stable US stocks were set to rise on Monday, but some pockets of the market hinted that the fallout from the incident was far from over.

While S&P 500 and Nasdaq futures rallied, turmoil continued to engulf First Republic Bank, whose shares fell more than 60% in early trading Monday. PacWest Bancorp lost more than 20%, while Columbia Banking System Inc. fell 5%.

The buckling shares highlight that even after the emergency measures of US regulators, pockets of the banking world remain unstable, with investors on edge that more attacks are possible. Overall, the government’s actions strengthened the markets, although the overnight gains started to fade in the morning in London.

European stocks retreated amid declines in bank shares afterward HSBC Holdings Plc has agreed to buy the UK arm of Silicon Valley Bank. The biggest fallers include Virgin Money UK Plc, Banco de Sabadell SA and Commerzbank AG. Credit Suisse Group AG fell more than 8%.

“After the liability-driven investment fund crisis in autumn 2022, we see that this is another period where parts of the financial system are hit by the unwinding of the central bank’s accommodative policy,” said the Deutsche Bank analyst. Benjamin Goy.

As U.S. regulators introduce a new backstop for banks that Federal Reserve officials say is enough to protect the nation’s depositors, the surprise announcement that New York’s Signature Bank is closing is a reminder to investors that further turmoil, at least among regional banks, is still possible. A senior US Treasury official said that some institutions have issues similar to the failed Silicon Valley Bank.

Most of the big US banks rallied, such as JPMorgan Chase & Co., Bank of America Corp. and Wells Fargo & Co. At the same time, First Republic Bank dropped 60% even as the lender said it had more than $70 billion of unused liquidity to fund operations from agreements involving the Federal Reserve and JPMorgan. PacWest Bancorp fell 25% in the premarket.

US stocks fell at the end of last week when Silicon Valley Bank suddenly collapsed in the biggest incident since the global financial crisis. The Fed’s aggressive tightening campaign has sent interest rates soaring, leaving some banks holding long-dated bonds falling in value at the same time their financing costs are rising. .

“The market is likely to remain cautious despite regulators stepping in,” said Marija Veitmane, senior multi-asset strategist at State Street Global Markets. “It’s a tough position the Fed is in, on the one hand it has to keep hiking to arrest inflation, but it also has to protect the financial system. It feels like a lose-lose situation for the Fed and the market.

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