(BFM Bourse) – Despite the rescue of the First Republic Bank by JP Morgan, concerns about the banking sector are resurfacing. Several regional banks suffered heavy selloffs at the close Tuesday night on Wall Street. The market is looking for the weak link.
The relief will have been short-lived after the takeover of the majority of First Republic Bank’s assets by JP Morgan. US regional banks were once again in the market’s sights, posting heavy losses at the close on Tuesday night.
Regional bank PacWest, whose listing has been suspended several times for volatility, fell 28% while Western Alliance dropped 15%. Zions Bank returned 11%, KeyCorp and East West lost 9%. The big American banks did not escape this movement of defiance: Wells Fargo closed down 3.8%, Bank of America folded for its part by 3% followed by Citigroup (-2.7%) and JPMorgan Hunting (-1.6%).
“It is obvious that the concerns are reborn even after the First Republic takeover operation, it is getting worse,” said Karl Haeling of the LBBW bank, quoted by AFP.
This renewed tension across the entire banking sector weighed on the indices, including the S&P 500, which lost up to 2% during the session. “Wall Street is rapidly pressing the sell button as the banking turmoil doesn’t seem to be going away anytime soon,” said Ed Moya, senior market analyst at Oanda.
“Risk appetite did not hold as traders focused on lingering doubts about regional banks, growing recession probabilities and growing risks of the US defaulting on debt. next month,” he continued.
A lame duck hunt
On Monday, the American giant JPMorgan bought most of the assets of its little regional sister First Republic, which had been in turmoil for several weeks. This operation “will help stabilize the system”, hammered several times Jamie Dimon, the boss of JPMorgan, after the announcement of the operation.
This rescue was to reassure investors and close the chapter of the banking crisis which had sown panic on the markets last March. In addition to First Republic Bank, the two close failures of Silicon Valley Bank and Signature Bank in mid-March caused panic in global financial markets.
But for the markets, the reassuring words of Jamie Dimon are not taken at face value. “The market is telling us that it is chasing other banks,” adds Karl Haeling.
The banks that suffered the most on the stock market on Tuesday are those whose deposits fell the most. Frightened, savers turn to institutions deemed more solid. As a result, these banking establishments are “the most vulnerable,” said Ryan Nash, an analyst at Goldman Sachs, during a press briefing on the state of the banking sector on Tuesday, reported by AFP.
“During the financial crisis (of 2007-2009), when the situation of a bank was resolved (by bankruptcy or takeover, editor’s note), the market tended to seek the next weak link”, recalls the specialist. “That’s what’s happening right now,” he adds.
The markets therefore fear the domino effect. If this shock wave spreads to larger banking institutions, the panic movement will be more intense. The Federal Reserve therefore cannot turn a blind eye to these risks. It is due to make its monetary policy decision on Wednesday afternoon and the markets are hoping that it will carry out a final monetary tightening before a break in this context of banking turbulence.
“The Fed must see ‘the difficulties in the banking sector’ as a game-changing event”, continues Karl Haeling of LBBW and no longer consider that banks bear the brunt of “isolated cases of mismanagement”.
It is therefore in this turbulent context that French banks will publish their accounts for the first quarter. On Wednesday, BNP Paribas had the heavy task of inaugurating the ball for tricolor publications in this sector in crisis. The leading bank in the euro zone had a very good start to the year with results that exceeded expectations.
The rue d’Antin bank is reassuring, as is its transalpine counterpart, Unicredit, which reported quarterly results that outperformed market forecasts. Next Wednesday, Crédit Agricole will try its hand at the exercise before Societe Generale on Friday 12 May.
On the Paris Stock Exchange, BNP Paribas is stable at 56.95 euros, as is Crédit Agricole at 10.94 euros, while Société Générale is down slightly by 0.3%.
Sabrina Sadgui – ©2023 BFM Bourse