DOJ reviewing First Republic Bank staffers' stock trades

Yahoo Finance's Julie Hyman analyzes a report from Bloomberg that the U.S. Department of Justice is reviewing First Republic Bank staffers' stock trades.

Video transcript

SEANA SMITH: Well, the Justice Department reportedly looking into trades of former First Republic employees. Yahoo Finance anchor Julie Hyman is here with the details. Julie, my twin, we'll talk about our dress of choice in just a second here, but what are we learning on this breaking news?

JULIE HYMAN: Yeah, got to get to business first. Indeed, Bloomberg is reporting that the Justice Department is looking into this and whether anyone at First Republic used inside information when making transactions. Now, the company's transactions, executive transactions, had already been under scrutiny by Congress because there were some allegations that some inside the firm had traded on that information, going into a worsening situation, and then the collapse of the bank.

On top of that, of course, there's also a lot of scrutiny into executive pay, both at that bank and at Silicon Valley Bank and some of the other failed banks. So all of this kind of just, once again, highlighting how much scrutiny. there is of this situation here. And we don't know if there are going to be charges in this particular case, the Bloomberg story points out.

But we do know that this investigation is going on before First Republic was seized by regulators, and ultimately, part of it sold off to JPMorgan. We did see a big plunge in the shares. So if one was working at the bank and knew [AUDIO OUT] what was going to happen theoretically, illegally, one could have tried to benefit from that information.

SEANA SMITH: Certainly a story we're going to continue to follow. And Julie, you're also taking a look at some of the broader trends that we have seen when it comes to trading in regional bank stocks. They're starting to look a little bit like meme stocks, aren't they?

JULIE HYMAN: Yeah, this is a phenomenon that the Wall Street Journal pointed out today that I thought was a good observation. They went into a lot of chat rooms, talked to a lot of retail investors who were looking at the bank stocks anew in this way. If you look at just an example, PacWest, and even how it is trading in today's session, the stock had been coming back recently and even, as you can see from the daily chart, had been higher at some points over the course of the day.

And that's after the company agreed to sell civic financial services-- that's one of its unit-- to a real estate lending firm as part of its efforts to offload some of its assets and dig itself out of a bit of a financial hole. So the shares initially were higher. Now they've traded lower. If you look at the year-to-date chart of both it and something like a Western Alliance, you can see the enormous swings that we have seen in the stock, most of it to the downside.

But there are some things that are of reminiscent of the peak of the meme stock race. Many of these stocks have really come into the public eye, have now become more sort of well-known consumer names, if you will, because of all of this going on. There has been a lot of talk about them. And if you look at the regional bank ETF for the year-to-date, it's not limited to just a PacWest and something like Western Alliance. It's happened with a lot of the smaller regional banks in the wake of the SVB, Signature Bank, et cetera, collapses.

One of the other things that's characterized these moves, that, at times, don't seem pegged to any particular news, right, except for perhaps an uptick in chatter on a place like Reddit. That's one of the things that we really saw characterize the meme stock craze, is that there wouldn't necessarily be any news, but all of a sudden there would be this uptick in discussion. And the Journal pulled some data from Hootsuite and looked at social media mentions for these stocks. And you can see here the spikes in those mentions of some of these companies that we've been talking about.

This is one of the key differences that we've discussed before between this admittedly smaller banking crisis and the great financial crisis, is that social media wasn't really a factor at that point in time. In addition to that, you didn't have commission-free trading. You didn't have something like Robinhood. So it wasn't as easy both to communicate about these kinds of names and then also to trade on them.

And then, finally, one more thing that has sort of characterized some of the meme stock trades in the past is short squeezes, right? High short interest and then short squeezes, and S3 Partners has tracked some of these surges in short interest related to some of these banks. And you have definitely seen that. In fact, it's gotten to such a point, of course, is that some of the banks themselves and some regulators have called for at least temporary bans on shorting activity in some of these banks. That hasn't really gone anywhere, Seana. But we've definitely seen that short interest persist, even as we get some squeezes and covering happening at certain times.