Big banks continued showing resilience in the face of the bank crisis during a second week of earnings reports. Bank of America followed the trend of making bank on higher interest rates, while deposit flows appeared to settle for most.
Still, results from regional banks showed more of a mixed bag. State Street, M&T Bank and Schwab all reported drops in deposits the first quarter of the year, with Schwab’s most significant at 11%. But investors didn’t run for the hills.
While the Federal Reserve’s rate hike campaign has helped buoy profits for banks, it was also the undoing for institutions like Silicon Valley Bank and Signature Bank. Meanwhile, First Republic Bank, which reports earnings on April 24, is not yet out of the woods.
“Part of the reason that the Fed is indicating they may not hike anymore and the market is pricing in rate cuts later in the year because there’s a perception that there may be a crisis in the banking sector, but from the indicators that I watch, I think that it’s basically over,” said Joseph Wang, chief investment officer of Monetary Macro. “What I watch is basically weekly data published from the Fed about loan creation in the banking sector, and as of the most recent data, it looks like banks – both large banks and small banks – have begun making loans again.”
Wang, known online as the Fed Guy, said he interprets the data to mean there’s no panic or doom, just slowing down, which is what the Fed wants.
“First Republic, though, might be a bit more challenging,” he said. “If you have 4,000 banks, some of them are not going to be managed well. We know Silicon Valley Bank obviously was not, Signature Bank was not either. And one of the banks that was not managed as well but not as poorly as Silicon Valley Bank is First Republic, so there may be some trouble there going forward.”
First Republic has lost around 90% of its market value this year and required substantial assistance from other banks to stay afloat following the failures of Silicon Valley Bank and Signature Bank. Analysts estimate the bank will report a $40 billion loss in deposits on April 24.
Bad interest rate investment plays plagued the regional bank as well, but Bloomberg reports a stockpile of low-interest loans is also dragging it down. During the pandemic, the bank dished out loans with very favorable terms, including delayed repayment, to wealthy, highly-qualified clients. That portfolio of loans is one thing hindering a sale, Bloomberg sources said.
Watch the full interview above for insight on why commercial real estate loans are troubling the market and whether a credit crunch is still on the horizon.
