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First Republic and PacWest Bancorp plunge as fears of contagion grow following the biggest bank failure since 2008

Trader at NYSEA trader works at the New York Stock Exchange NYSE in New York, the United States, on March 9, 2022.

Michael Nagle/Xinhua via Getty

  • The implosion of Silicon Valley Bank has dragged down other regional banks as fears of contagion grow.
  • Shares of First Republic Bank and PacWest Bancorp have plunged as much as 61% and 53% since Thursday, respectively.
  • Both regional banks are growth-oriented and have exposure to venture capital customers.

The biggest bank failure since the 2008 financial crisis has dragged down other regional bank stocks as fears of contagion grow.

Since Silicon Valley Bank announced a $1.8 billion loss related to its bond portfolio and has since been taken over by the FDIC, shares of First Republic Bank and PacWest Bancorp have plunged as much as 61% and 53%, respectively.

Both regional banks are headquartered in California, are growth-oriented, and have exposure to the same type of venture capital clients that Silicon Valley Bank had. A sizable amount of PacWest’s lending portfolio is tied to real estate owned by venture capital firms, and First Republic has been wooing venture capital clients for years. 

Another regional bank that has gotten hit hard over the past couple days is Western Alliance Bancorporation, which has crashed 58%.

To stem the fears of contagion, both First Republic and Western Alliance issued financial updates on Friday.

First Republic said in an 8-k filing that its deposit base “is stong and very-well diversified,” noting that its consumer deposits have an average account side of less than $200,000 while its business deposit accounts have an average account size of less than $500,000. 

Those comments helped relieve fears that a bank run could seriously dent the company as it did Silicon Valley Bank, which suffered significantly after several VC firms advised its portfolio companies to immediately pull their deposits from Silicon Valley Bank. First Republic also said deposits related to technology firms only represented 4% of total deposits. 

Meanwhile, Western Alliance issued updated financials that showed growing deposits and strong liquidity in the form of $2.5 billion in cash on its balance sheet, a fully collateralized credit facility of $13.1 billion, and uncommitted credit lines of $4.6 billion.

Both updates from First Republic and Western Alliance helped stem the steep declines seen in their stock prices on Friday. First Republic had fallen as much as 53% in early Friday trades before it pared those losses to just 15%, while Western Alliance fell as much as 52% before it halved those losses to about 26%.

PacWest, which did not issue a financial update since the downfall of Silicon Valley Bank, plunged 34% in Friday trades.

The dust has yet to settle from the implosion of Silicon Valley Bank, and until it does, fears of contagion among other regional banks will likely remain prevalent. Not helping the matter is the expectations that the Federal Reserve will continue to hike interest rates this year, which is what helped spark the downfall in Silicon Valley Bank.

Read the original article on Business Insider
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