- First Republic and other bank stocks surged Tuesday on ebbing fears about the banking crisis.
- Treasury Secretary Janet Yellen said the government could provide more backing for deposits.
First Republic Bank was a standout among bank shares that jumped Tuesday as Treasury Secretary Janet Yellen offered reassurance to US depositors following the demise of Silicon Valley Bank this month.
The crisis of depositors pulling money from small and mid-sized US banks is "stabilizing," and the government could provide further support if the problem widens, Yellen told the American Bankers Association at its meeting in Washington.
Shares of First Republic Bank, which landed a $30 billion rescue package from larger rivals last week, surged as much as 46% to $17.79. The stock was still far from where they started this year, around $121.
The San Francisco-based lender was the best performing on the S&P 500 Financials Sector, which itself gained more than 2% during the session.
Regional banks PacWest and Western Alliance Bancorp, whose stocks have been throttled lower in recent sessions, were up 14% and 16% during Tuesday's action. Among the country's largest lenders, JPMorgan Chase advanced by 3.3% and Bank of America rose 4.2%.
The Treasury Department, the FDIC and the Federal Reserve protected all depositors at Silicon Valley Bank and Signature Bank after they were seized to ward off a broader run on banks. Deposits were covered above the FDIC's account limit of $250,000.
"Our intervention was necessary to protect the broader US banking system," Yellen said, according to The New York Times. "And similar actions could be warranted if smaller institutions suffer deposit runs that pose the risk of contagion."
Investors also appeared to latch onto a Wall Street Journal report late Monday that JPMorgan CEO Jamie Dimon was working on a second round of funding for First Republic. Depositors have been pulling money from that bank and other regional lenders, fearing they face similar financial risks that spurred the downfall of SVB.
Despite the latest rally, the largest 12 banks in the S&P 500 Financials Sector are widely underperforming the S&P 500 so far this year, DataTrek Research co-founders Nicholas Colas and Jessica Rabe wrote in a Tuesday note.
"On the plus side, they are very cheap now (average 7.9x forward earnings) and have solid dividend coverage ratios. Also, despite all the recent turmoil, analysts are not cutting their 2023 EPS estimates," they wrote.
"On the downside, every name here will have to go through the Fed's 2023 Stress Test/CCAR process. This will determine their ability to raise/maintain dividends and stock buybacks. These results will not be out until June, a long time to wait for a catalyst."