First Republic Bank’s collapse reignites banking industry fears

Yahoo Finance Live anchors Julie Hyman and Brad Smith discuss the decline in regional bank stocks.

Video transcript

JULIE HYMAN: Regional-bank stocks, they've taken a beating in recent weeks, sparked even further by this week's collapse of First Republic Bank. The US regional banking index hit its lowest point in 2 and 1/2 years.

And what's so interesting about this is with the FDIC seizure and then sale of First Republic to JPMorgan, there initially was this feeling, OK, this phase is done. And then the rest of the regional banks began to fall and particularly those that are based on the West Coast that have seen the worst of the selling throughout this whole situation. And that then raised questions again about where the exposure is, or is the sentiment creating the exposure problem or at least exacerbating it, right? Questions about how much in the unrealized losses do these other banks have on their balance sheets, questions about commercial real estate and what's still going to happen in this whole situation.

BRAD SMITH: Yeah, and even if you were looking through the most recent earnings reports from both of those companies that are largely in the throes or in focus given some of the declines that we've seen over the past 24 hours, PacWest or Western Alliance, even if you were to look through their earnings reports and look at one of the areas that had been key to track this entire bank portion of the earnings season, deposits, deposits at PacWest were actually just fine. Total deposits actually increased by about $1.1 billion compared to the company's most recent update that they had given just about a month prior there-- actually, a week prior. And deposit balances further increased as of April 24, 2023, by $700 million.

So all of this considered, you know, you look across where there is some of that weakness that persists. There is a broader sentiment that is being carried by the regional banks right now, and that sentiment risk is continuing to impact them, and the share prices reacting in tandem here.

JULIE HYMAN: Yeah and what's remarkable is we've seen them already fall so much. They're still falling this morning. I mean, typically you see a drop like this, and then you see a little bit of a bounce back. At least at this moment, if you look at the premarket trade for many of these stocks, they are not coming back. They're not down by as much, to be sure, but they are still trending lower.

BRAD SMITH: Right. And the conversation, especially when we were talking about the takeover of the assets from First Republic Bank by JPMorgan-- of course, JPMorgan had gotten them from the FDIC after the FDIC had receivership over First Republic Bank. With that considered, it now brews this conversation of, OK, so what does this mean for other regional banks that were trying to bid into that opportunity to get this fire-sale type of deal and be able to build up their own business?

And I think that's where it's caused even more of a wrinkle for investors as how to play regional banks, should they so choose, especially knowing that if there is a case like this again in the future that it's not necessarily the regional banks that would have the opportunity to buy because the Fed or regulators would then immediately-- or FDIC, rather, would immediately look towards making one call or two calls, and that call is the biggest bank in the US.

JULIE HYMAN: I mean, we have talked to some analysts who still see value in those regionals, but I guess we'll see what ends up happening.

BRAD SMITH: Absolutely.