First Republic bounces back as SVB panic lessens

Shares of First Republic Bank, a financial institution in the United States that does business with startups, are rebounding today after a punishing start to the trading week.

Caught in the wake of the shock collapse of erstwhile rival Silicon Valley Bank, shares of First Republic fell 62% yesterday. Investors, concerned that actions taken over the weekend by the American government to stem a potentially budding banking crisis might not be sufficient, sold First Republic and other, related banking stocks like PacWest and Western Alliance.

Today they are all on the bounce: First Republic is up around 57% as of the time of writing, PacWest is up 76% and Western Alliance is up a comparatively modest 44%.

Before the government stepped in to calm markets by ensuring that depositors were whole and liquid at SVB, there was concern in the financial world that smaller banks (measured by total assets) could lose their appeal as places to do business. After all, why risk banking with a smaller institution if it could fail, whereas larger institutions could be considered too large to do so? It now appears that a far greater portion of the American banking industry will not be allowed to fail in a disorderly fashion, making the First Republics of the nation a sufficiently safe place to bank. Hence, a share-price rebound today at many banks that took stick yesterday.

While First Republic does work with tech clients, it is not as tech-centered as SVB was; First Republic’s recent 8-K filing reported that “no one sector [of its client base] represents more than 9% of total deposits,” adding that tech was just 4%. Oddly, despite the massive decline and rebound in the value of banks like First Republic, they could wind up with a good run of new deposits, provided former SVB customers choose them over larger banks.

It is possible to read the rebound in the value of smaller American banks as indication that investors consider the risk of contagion as falling. In contrast, yesterday when the same banks were crashing, we inferred the opposite. That’s how fast the news has been moving in recent weeks.