Bank stocks finished a tough week with mixed trading Friday as investors balanced jitters around bank liquidity and weakness in Deutsche Bank shares against slightly positive emergency lending data and at least one analyst upgrade in the sector.
First Republic Bank FRC,
Deutsche Bank’s DB,
Still, Deutsche Bank’s 5-year credit-default swap’s trading level of 215 on Friday is nowhere near the peak for Credit Suisse CS,
See: Deutsche Bank’s debt insurance spikes, but eurozone bank levels aren’t that different from last year
In a sign of reduced bank stress though, U.S. banks drew $163.9 billion in emergency borrowing from the Federal Reserve in the week ended March 22, compared to $164.7 billion in the prior week.
First Horizon National Corp. FHN,
The KBW Nasdaq Bank Index BKX,
Among megabanks, Morgan Stanley MS,
Regions Financial Corp. RF,
Regions Financial currently has about 145% of available liquidity to cover its uninsured deposits, followed by 136% for KeyCorp and 134% for Fifth Third Bancorp.
Comerica ranks at the bottom of the list with 96% coverage of its uninsured deposits; followed by Citizens Financial Group Inc. CFG,
“We recognize that funding the balance sheet with wholesale funding would present a material earnings headwind, but the purpose of this exercise is to show that sufficient liquidity is available even in the case of significant deposit outflow,” Horowitz said.
Debt levels reported by the Federal Home Loan Bank, which provides extra debt to banks, has leveled off, which “suggests either banks’ demand for immediate funding has cooled, or they are turning to other facilities,” Horowitz said.
Prior to Friday’s trades, the KBW Nasdaq Bank Index was down 22.6% so far in 2023 as the March 10 failure of Silicon Valley Bank has impacted the sector, compared to a 2.8% year-to-date increase by the S&P 500 SPX,
Charles Schwab Corp. SCHW,
Without having to sell a single security in its portfolio, “there would be a sufficient amount of liquidity right there to cover if 100% of our bank’s deposits ran off,” Bettinger said in the report. Schwab could borrow from the Federal Home Loan Bank, issue certificates of deposit, or collect interest paid on its bond portfolio, he said.
The comments came as investors study reduced values of long-term holdings and other assets held by financial firms that may not be sufficient to cover a sharp drop in deposits. In the case of Charles Schwab, the bank is holding some bonds that are currently under water on paper.
Seawolf Capital has disclosed it has a short position in Schwab. Seawolf Capital portfolio manager Porter Collins told the WSJ that Schwab has mismanaged its balance sheet.
Also Read: Regulators raised ‘no serious issues’ at Signature Bank just before its demise: Barney Frank