Mar 20, 2023
First Republic Set to Extend Record Loss as S&P Downgrades Again
(Bloomberg) -- New York Community Bancorp Inc. surged by a record Monday, leading a rally in regional bank stocks, after the lender was upgraded by at least two analysts following its agreement to take over Signature Bank’s deposits and some of its loans.
Shares of the Hicksville, New York-based bank jumped 32% for its biggest gain ever. The move made it the best performing member of the KBW Regional Banking Index, which rallied 1.5% on Monday. Meanwhile, First Republic Bank extended its rout to close at an all-time low.
NYCB is benefiting from a “sweetheart deal” as the Federal Deposit Insurance Corp. “priced the assets to move quickly,” wrote Wedbush analyst David Chiaverini in his upgrade of the stock. “In exchange for the $2.7 billion discount on acquired loans, plus the interest income earned on the loans and securities, NYCB will give up only $300 million in equity appreciation rights to the FDIC,” he added.
Monday’s rally across regional banks helped stem what had been a brutal two-week stretch for the sector following the collapse of both Silicon Valley Bank and Signature Bank. UBS Group AG’s $3.2 billion takeover of Credit Suisse Group AG on Sunday helped further calm the nerves of investors.
Among other regional lenders rallying to start the week, PacWest Bancorp gained 11%, while BankUnited Inc. jumped 4.8%. First Citizens BancShares Inc. jumped by the most since November 2020 after a report that it is still hoping to make a deal for all of Silicon Valley Bank. Wall Street’s larger firms mostly rallied with JPMorgan Chase & Co., Morgan Stanley and Goldman Sachs Group Inc. each climbing by more than 1%.
Still, despite a rebound for the majority of the banking sector, First Republic shares faced renewed selling, plunging 47% and triggering multiple volatility halts during the day. The San Francisco-based lender extended its drop after reports that JPMorgan Chief Executive Officer Jamie Dimon is leading talks about fresh efforts to stabilize the lender.
Adding additional pressure to shares — S&P cut its credit rating for the second time in less than a week.
While analysts remain on edge that a continued deposit flight from regional banks will harm liquidity and potentially spark a credit crunch, some view the recent selloff as an opportunity for investors to buy the dip.
“We believe this is one of the best risk/reward trade-offs in this group that we have seen in our 23-year career,” said Baird analyst David George, noting the KBW Bank Index’s 15% drop last week. “The stocks are more inexpensive today than they were during the pandemic, and if you don’t buy banks here, we aren’t sure when you do.”
(Updates pricing throughout to market close.)
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