Why Are Bank Stocks SCHW, PACW, WAL, BAC, WFC, CS, GS, ALLY Down Today
Many bank stocks are sinking this morning on continued fears about their financial health. The worries are arising despite the U.S. government’s decision, announced yesterday, to guarantee all of the deposits held by SVB Financial Group&…
Many bank stocks are sinking this morning on continued fears about their financial health. The worries are arising despite the U.S. government’s decision, announced yesterday, to guarantee all of the deposits held by SVB Financial Group’s (NASDAQ:SIVB) Silicon Valley Bank, which was closed by federal and Californian regulators on Friday. Additionally, Washington will immediately make whole all the depositors of Signature Bank, a crypto-focused lender which was closed by New York regulators yesterday. The Federal Deposit Insurance Corporation (FDIC) has now taken control of both failed banks.
Finally, the Federal Reserve launched a fund that will provide loans of up to a year in duration to troubled banks that accept deposits. These banks will have to put up certain assets as collateral. However, for purposes of the loans that these institutions will receive from the Fed, their collateral will be valued at the price they paid for the assets rather than the prices at which they are currently trading. That’s significant because the market value of many of these instruments has dropped sharply amid the Fed’s rapid interest-rate hikes this year.
Fears Still Remain, But Some Are Upbeat on Bank Stocks
Despite Washington’s emergency measures, which some are calling a bailout, a number of analysts are warning that the banking system still faces major risks and warn that bank stocks could fall much further. For example, veteran banking analyst Dick Bove stated this morning that U.S. banks are using “accounting gimmickry to avoid indicating what [their] true equity” is. The analyst believes that “investments in U.S. government-backed securities” are creating serious challenges for banks.
One of the U.S. bank stocks tumbling most sharply amid fears about the sector this morning is First Republic (NASDAQ:FRC), whose shares are tumbling 60% in early trading. Like Silicon Valley, First Republic is a medium-sized institution that’s based in Northern California. As of writing, the Nasdaq halted the trading of FRC stock.
Among the other financial stocks sinking this morning are Charles Schwab (NYSE:SCHW), Credit Suisse (NYSE:CS), Bank of America (NYSE:BAC), and PacWest (NASDAQ:PACW).
Some have been hit harder than others this morning, with Ally Financial (NYSE:ALLY) down over 10% and Wells Fargo (NYSE:WFC) down only 5%.
Sounding an optimistic tone about bank stocks this morning is Goldman Sachs (NYSE:GS). In a note to investors, the firm stated that large bank stocks face little risk. The firm recommended that investors buy such stocks on weakness.
On the date of publication, Larry Ramer did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Larry Ramer has conducted research and written articles on U.S. stocks for 15 years. He has been employed by The Fly and Israel’s largest business newspaper, Globes. Larry began writing columns for InvestorPlace in 2015. Among his highly successful, contrarian picks have been PLUG, XOM and solar stocks. You can reach him on Stocktwits at @larryramer.
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