TFC - Bank stress makes Fed's May rate hike a little less likely Evercore ISI says

2023-04-26 13:59:01 ET

Bank stress is back on the front-burner, after reports that Federal Republic is seeking to sell $50B-$100B of underwater assets at above-market prices in return for equity warrants, said Evercore ISI Vice Chair Krishna Guha.

Of course, First Republic Bank ( NYSE: FRC ) stock is showing the most stress, falling 21% in Wednesday afternoon trading after plunging 49% in Tuesday trading, when the plan to sell the assets was reported.

The renewed stress makes what looked like a sure 25-basis-point rate hike by the Federal Open Market Committee "a bit less firmly locked," he wrote in a note to clients. "We cannot rule out the possibility developments around First Republic ( FRC ) could unfold in a manner that would lead the FOMC to skip May while signaling a hike in June."

Still, markets are expecting the 25-bp hike to proceed; the probability of the hike stood at 83.4% compared with 75.8% on Tuesday and almost unchanged from a week ago, according to the CME FedWatch tool .

And Guha is still in the camp expecting the Fed to raise rates next week as the Fed "has a sgrong bias to hike in May and will be wary of deferring that move to June or July in part because nominal data remains strong. The potential for a debt ceiling crisis would make it difficult to raise the policy rate in June or July, he said.

While investors are wary of First Republic ( FRC ) share, regional banks overall are doing well in Wednesday trading. The SPDR S&P Regional Banking ETF ( KRE ) rose 1.7% . PacWest Bancorp ( PACW ), which was hit in the immediate aftermath of the SVB and Signature Bank collapses, rose 15%. Western Alliance ( WAL ) gained 1.5% , PNC Financial ( PNC ) +3.8% , KeyCorp ( KEY ) +2.0% , and Truist Financial ( TFC ) +1.8% .

More on First Republic Bank:

• First Republic Bank stock slides 18% more as it strives to survive
• Uncertainty, Just Uncertainty
• The Contagion Is Here — Survival at Stake Now
• First Republic Bank weighs plan to sell up to $100B of securities, mortgages

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