Traders on the NYSE floor
First Republic shares fell on Friday in volatile trading.
Friday’s declines were based on a major sell-off from Thursday. THE S&P Regional Banks ETFs fell 16% for the week, which would be its worst week since March 2020.
SVB came under pressure after announcing on Wednesday that they lost $1.8 billion in an asset sale and were looking to raise more capital. CNBC’s David Faber reported on Friday that the fundraising effort had failed and SVB was exploring a potential sale. But Faber also reported that the selling process was becoming difficult due to the rapid outflow of deposits from the bank.
At noon on Friday, regulators announced they were shutting down the bank and the Federal Deposit Insurance Corp. would cover insured deposits. Shares of regional banks had recovered some of their morning losses, but news of the SVB failure sent them falling again.
SPDR S&P Regional Banking ETF, 1 day
First Republic fell to $45 per share in Friday’s session, down more than 50%. However, the bank may actually derive some benefit from SVB’s demise, as it is one of the financial institutions that has seen increased influx THURSDAY. The stock closed Friday at $81.76 per share.
While SVB’s situation is somewhat unique due to its funding base focused on tech startups, other banks with large bond portfolios could face similar issues if forced to sell those bonds. before maturity in order to raise funds. Treasuries have fallen in value over the past 12 months as the Federal Reserve raised rates eight times.
These bond sales could result in losses like what happened with Silicon Valley Bank.
Yet Wall Street analysts believe SVB’s problems are unlikely to spread to wider banking sector. Shares of major banks saw smaller declines or even rose on Friday.
Additionally, most of the assets sold by SVB were treasury bills, which are not at risk of default and will hold their value at maturity. The 2008-2009 financial crisis involved mortgage-backed securities that plummeted in value due to home loan defaults.