Regional US bank stocks rallied on Tuesday, clawing back some losses from the selloff seen in the wake of Silicon Valley Bank’s collapse, as concerns about wider contagion in the financial system eased.
(Bloomberg) — Regional US bank stocks rallied on Tuesday, clawing back some losses from the selloff seen in the wake of Silicon Valley Bank’s collapse, as concerns about wider contagion in the financial system eased.
First Republic Bank jumped as much as 63% for its sharpest intraday gain ever, following a record Monday drop, while PacWest Bancorp surged 64% and Western Alliance Bancorp rose 53%. Bigger lenders such as Bank of America Corp. and Citigroup Inc. also advanced. Meanwhile, Charles Schwab Corp. rallied as much as 18%.
Regional bank stocks “represent one of the best risk/reward in many years” in the wake of the rout, Baird analyst David George wrote in a Tuesday note. “Extreme fear and negative sentiment” have been driving the selloff, but “we believe the risk of contagion is generally low and believe investors should take advantage of weakness to add exposure to the group.”
While Tuesday morning’s bounce is helping stocks pare the recent carnage, they’re still far below levels from last week. First Republic would need a 268% rally from Monday’s close to reach its closing level from Wednesday, and PacWest would need to jump 174%.
“Once we move away from initial shock rather than painting everyone with the same brush, there is a tendency to scrutinize the models a bit more, the banks’ deposit bases and access to liquidity,” said Gary Schlossberg, global strategist at Wells Fargo Investment Institute. “There has been no foot-dragging by the government, we could even see more steps down the road to stabilize the system.”
The selloff will “certainly be contained,” if there is a suggestion that Fed policy is shifting a bit, he added.
Regulators stepped in with extraordinary measures, introducing a backstop for banks to protect the whole nation’s deposits, after the swift demise of three banks. Regional banks suffered the most on fears of a customer exodus to bigger lenders, perceived as safer for deposits.
Investor Michael Burry, who rightly predicted the 2008 housing crash, said he believes the spreading crisis following the collapse of Silicon Valley Bank could resolve “very quickly” and that he doesn’t see any “true danger.”
Meanwhile, Moody’s Investors Service placed First Republic Bank and five other US lenders on review for downgrade, the latest sign of concern over the health of regional financial firms.
The KBW Bank Index, one of the main gauges for the financial industry, fell for six straight sessions through Monday and lost a quarter of its value, extending declines even after regulatory intervention was announced over the weekend. It jumped as much as 6.5% on Tuesday.
–With assistance from Alexandra Muller and Jan-Patrick Barnert.
(Updates chart, commentary and trading throughout.)
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