2023-05-09 09:55:48 ET
Wells Fargo analyst Jared Shaw and team came to the conclusion that failed lenders Silicon Valley Bank ( OTC:SIVBQ ) and First Republic Bank ( OTCPK:FRCB ) "were outliers," based on fair value analysis, as other top-100 banks maintained robust fundamentals.
"None of the banks in the Top 100 by assets would have negative tangible equity after adjusting for FV (fair value) marks on both the asset and liability sides of the b/s assuming a 5% reduction in loan and securities marks from 4Q to 1Q," the equity analysts wrote in a May 8 note.
Nonetheless, shares of regional banks were under pressure again in Tuesday morning trading, with the SPDR S&P Regional Banking ETF ( KRE ) sliding 2% , amid investors' concerns about deposit costs and flows and the overall health of the sector.
After adjusting for fair value marks, First Republic ( OTCPK:FRCB ) was the only bank in the mid-cap bank group to have negative estimated tangible equity, the note said. That's even after accounting for a 5% reduction on loans and securities marks from Q4 levels. "SIVB at a 65% hit to TE ranked 5th in the Top 100, which overall had a median estimated impact of -23% to tangible equity."
In a separate note, Morgan Stanley's Manan Gosalia explained the recent selloff across regional bank stocks (KRE ( KRE ) down 13.5% M/M) as "overdone," as "there is currently no evidence of accelerating deposit outflows." Hence, the slump was "driven more by investor fears than hard data."
Over the next several quarters, though, the biggest headwind for mid-cap banks will continue to be rising deposit costs in the wake of higher interest rates, Gosalia warned, a move that could squeeze their net interest margins. That's on top of a slowdown in loan growth as well as exposure to the troubled commercial real estate market.
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SVB, FRCB 'were outliers' as fundamentals of other top-100 banks stay strong: WFC