FRC jumps nearly 30%, leads comeback rally in regional banks

First Republic was a good bank, but sentiment took over, says Cerity's Jim Lebenthal

First Republic led to a comeback rally in regional bank stocks on Tuesday as investors hoped for some sort of strategic action by the troubled bank — or another major regulatory move — to stem the sector’s downward spiral.

The move comes after Treasury Secretary Janet Yellen released a speech saying the government could prop up deposits at more banks if there was a risk of contagion. Regional bank stocks have been under pressure since a large outflow of deposits led to the collapse of Silicon Valley Bank and Signature Bank. Regulators guaranteed deposits at these institutions after they closed.

“The steps we have taken were not focused on helping specific banks or classes of banks. Our intervention was necessary to protect the broader US banking system,” Yellen said Tuesday in a remark prepared for a speech before the American Bankers Association. “And similar measures might be warranted if smaller institutions suffer from deposit runs that pose a risk of contagion.”

People make their way near a First Republic Bank branch on March 16, 2023 in New York City.

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Shares of First Republic rose 29.6% in Tuesday trading after falling 90% so far in March and hitting a record low on Monday. The SPDR S&P Regional Banking ETF gained 5.8% after falling 29% so far in March.

First Republic was seen as one of the remaining regional banks most at risk of the same fate as SVB as it had a high percentage of uninsured deposits at the end of the fourth quarter. JPMorgan Chase last week led a group of 11 banks that paid a total of $30 billion into First Republic, but its shares continued to decline.

First Republic selected Lazard to help review strategic options, the Wall Street Journal reported late Tuesday, citing people familiar with it.

“Following the $30 billion uninsured deposit by the nation’s 11 largest banks on Thursday, First Republic Bank, along with cash on hand, is well positioned to manage short-term deposits,” First Republic said in a recent statement.

This was reported by CNBC’s David Faber on Monday JP Morgan advises on alternatives to San Francisco Bank. Those alternatives include a capital increase or possibly even a sale, sources told Faber. CNBC’s Kayla Tausche reported Tuesday that the capital injection would only be made if a sale didn’t go through.

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First Republic, 1 day

Reuters reported Tuesday that top bank officials in Washington had a pre-scheduled meeting with First Republic to discuss and that the regional bank was considering downsizing to raise money.

Also encouraging was a report by Bloomberg News that the Treasury Department is investigating whether regulators have the power to temporarily limit deposits above the Federal Deposit Insurance Corp.’s current limit without Congressional approval. to assure, whereby persons with knowledge of the discussions are quoted. However, according to the report, these government officials do not yet believe that such drastic measures are needed.

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Regional bank ETF, 1 day

“There has been speculation that the limit may be doubled and further speculation that the FDIC may decide to insure all deposits,” Alexander Twerdahl, an analyst with Piper Sandler, wrote in a recent statement. “Indeed, it would take an act of Congress to change the FDIC’s insurance limit, and we anticipate that’s not an issue likely to be addressed anytime soon.”

KeyCorp And U.S. Bancorp each jumped more than 8% while Western Alliance And PacWest Bancorp. gained almost 15% and more than 18% respectively.

— CNBC’s Michael Bloom contributed coverage.