First Republic Bank’s stock fell Thursday and was the most actively traded bank stock on the New York Stock Exchange, as it absorbed another credit rating downgrade, while some other bank stocks moved higher.
First Republic
FRC,
stock dropped 8% on volume of 53 million shares.
Overall, bank stocks traded mixed after steep losses in the previous session amid strength in the broad equities market, a day after the U.S. Federal Reserve boosted its policy interest rate by 0.25%.
The KBW Nasdaq Bank Index
BKX,
dipped 0.2% while the Financial Select SPDR ETF
XLF,
rose 0.5%.
First Republic was the biggest decliner among stocks in the S&P 500
SPX,
Comerica
CMA,
fell 6%, along with a 4.2% drop by Zions Bancorp
ZION,
a 2.2% loss by M&T Bank Corp.
MTB,
and a 1.9% loss by KeyCorp.
KEY,
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Fitch Ratings late Wednesday downgraded First Republic Bank’s debt rating three notches, following a downgrade last week.
Fitch downgraded the bank’s issuer default rating to “B” from “BB” and said despite $30 billion deposit payment by 11 banks last week, First Republic’s cost of borrowing is rising.
“Fitch estimates that, due to the higher cost of funds, FRC is currently operating at a net loss that is not sustainable over the longer term absent a balance sheet restructuring,” the ratings agency said. “Furthermore, to the extent that FRC is required to repay the $30 billion at the end of its term, it will have to raise liquidity by selling assets.”
Separately, First Republic said it no longer plans to pay its top executives a bonus this year.
Also Read: First Republic won’t pay bonuses to executive officers this year
Truist analyst Brandon King cut stock price targets and earnings estimates for a host of banks, on expectations that net interest margins will fall, loan growth will slow and credit costs will increase. “[W]e continue to forecast a recession later this year with incrementally higher NCOs [net charge offs], provisioning and reserve levels,” King wrote in a note to clients.
He believes continued credit tightening by the Federal Reserve will put further pressure on deposit flows and pricing.
“We are also anticipating less excess liquidity deployment as banks keep more balance sheet liquidity on hand,” King wrote.
Truist cut PacWest Bancorp’s
PACW,
price target to $13 from $29, while its earnings-per-share estimate was dropped to $1.45 from $3.27.
PacWest stock fell 8.6%.
Truist also lowered its price targets for Western Alliance Bancorp
WAL,
to $50 from $86, while Zions Bancorp was reduced to $35 from $59.
Comerica’s price target was cut down to $54 from $78.
Western Alliance Bancorp drew praise Thursday for its discounted price and “strong earnings engine” as financial advisor Hovde Group initiated coverage of the beaten-down bank stock with an outperform rating. Western Alliance Bancorp stock WAL rose about 0.2%.
The stock closed at $31.91 a share on Wednesday in an ugly day for bank stocks, which have been hard-hit in the wake of the Silicon Valley Bank’s demise earlier this month.
Stifel Financial Corp.
SF,
stock rose 0.4% after it said Thursday it’s expanding its venture capital lending unit by hiring three “key” partners formerly with Silicon Valley Bank.
Jake Moseley, Matt Trotter, and Ted Wilson have joined the bank as managing directors, with leadership roles in Stifel’s venture banking unit based in the San Francisco Bay area.
Stifel Chairman and CEO Ron Kruszewski said the move marks the bank’s “commitment to growth companies, venture capital, and the entire innovation ecosystem.” Stifel said the three new hires will join fellow bankers Brad Ellis and Nat Stone as members of a five-person operating committee.
“We believe that Stifel is the best place for us to continue our mission of providing best-in-class financial services to entrepreneurs and their investors,” Moseley, Trotter and Wilson said in a prepared joint statement.
Silicon Valley Bank was taken over the the Federal Deposit Insurance Corp. and is now being sold with bids due this week.
Tomi Kilgore and Wallace Witkowski contributed to this report.
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