The bank crisis continued to unfold Monday as UBS agreed on Sunday to buy Credit Suisse, but the Swiss bank isn't in the clear yet. Elsewhere, First Republic shares were halted during their morning tumble as First Republic plots a stock sale. And U.S. Bancorp jetted higher on an upgrade.
The FDIC secured a deal to sell most of Signature Bank assets. And central banks team up to enhance U.S. dollar liquidity.
Financial stocks were mixed early Monday following the latest developments in the bank crisis.
UBS Buys Credit Suisse
Swiss regulators brokered a deal on Sunday for UBS to buy fellow Swiss banking giant Credit Suisse for 3 billion Swiss francs, which equates to $3.24 billion. The combined institution has more than $5 trillion in assets invested globally.
The Swiss National Bank provided a $108 billion liquidity-assistance loan to UBS to facilitate the deal. And the government pledged $9.7 billion to backstop losses as part of the takeover.
Roughly $17 billion in Credit Suisse debt will be dissolved as part of the deal, hanging bondholders out to dry. And Credit Suisse shareholders will receive one Swiss share of UBS stock for every 22.48 Swiss CS shares they own, according to the announcement.
The combined company provides total annual cost savings of $8 billion by 2027. Large staff cuts are likely, but the final number is still unclear. Credit Suisse was planning to cut around 9,000 positions prior to the deal.
Last week, Credit Suisse received a $54 billion injection from the Swiss National Bank to help prop it up. Credit Suisse American depositary receipts cratered more than 58% premarket Monday. UBS shares rose 3.4% Monday after sliding more than 3% before the bell.
U.S. Bancorp Upgrade
Baird upgraded its rating on U.S. Bancorp Monday to outperform from neutral with a 52 price target. Analyst David George believes the risk-reward trade-off remains "very attractive," he wrote in a research note. U.S. Bancorp and other large regional banks will likely benefit from a deposit funding perspective. "The stocks are more inexpensive today than they were during the pandemic, and if you don't buy banks here, we aren't sure when you do," the firm wrote. George called U.S. Bancorp a "high-quality regional bank with little to no downside and (about) 50% upside over time."
USB stock rose 4.7% Monday.
First Republic Downgraded, Plots Stock Sale
The New York Stock Exchange paused trading on First Republic shares multiple times on Monday for volatility purposes as FRC stock dove 47.3% during trading. Shares tumbled 15% premarket Monday following First Republic's downgrade Sunday.
S&P Global downgraded First Republic Bank deeper into junk status Sunday to mark its second downgrade in a week. Moody's and Fitch cut their First Republic ratings to junk last week.
On Friday, First Republic sought to raise cash in a private stock sale to other banks and private equity firms, the New York Times reported after market close. Late Thursday, The San Francisco-based outfit suspended its dividend after receiving a $30 billion rescue deposit from America's 11 largest banks during the day. Citigroup, Wells Fargo, Bank of America and JPMorgan led the deposit.
And on Monday, the Wall Street Journal reported JPMorgan CEO Jamie Dimon is leading discussions for a new First Republic rescue plan. The banks could convert some or all of the $30 billion in deposits into a capital infusion, and a sale or outside capital injection are also being considered, the WSJ reported.
On March 12, First Republic secured $70 billion in additional liquidity from JPMorgan and the Federal Reserve.
FDIC Secures Signature Bank Sale
On Sunday, the FDIC announced a deal to sell substantially all of Signature Bank's deposits and some loans to Flagstar Bank, the wholly-owned subsidiary of New York Community Bancorp. NYCB stock leapt 31.6% Monday following the news.
Signature Bank's 40 former branches began operating during normal business hours on Monday under Flagstar Bank. Depositors, except for digital banking customers, will automatically become Flagstar Bank customers. However, the Flagstar bid did not include the $4 billion in deposits related to Signature Bank's digital banking business. The FDIC will provide digital banking deposits directly to customers.
The agency expects Signature Bank's failure to cost the Deposit Insurance Fund $2.5 billion, but the exact cost will be determined once receivership is terminated.
Central Bank Coordination
On Sunday, the Federal Reserve, European Central Bank and other global central banks announced increases in dollar swap operations to daily from weekly in an effort to boost U.S. dollar liquidity. The operations began Monday and will continue at least through the end of April. The Bank of Canada, Bank of Japan and Swiss National Bank are also participating.
Government Intervention
On Sunday, Sen. Elizabeth Warren, D-Mass., said she wants to lift the FDIC deposit insurance cap from $250,000 to millions of dollars during a CBS News interview on "Face The Nation." Warren also called for greater accountability for banking executives, echoing similar calls from President Biden last week.
PacWest Update
PacWest Bancorp reported that it "continues to have solid liquidity," with over $10.8 billion in available cash, according to a Friday update. The company's cash exceeds its uninsured deposits, and since last Monday, "net outflows have fallen sharply, with deposit balance fluctuations substantially stabilizing," PacWest announced. PACW stock spiked 11% Monday after dropping nearly 19% Friday.
Bitcoin, Cryptocurrencies Skyrocket
Meanwhile, bitcoin continues to set nine-month highs amid the bank crisis, hitting a new peak of $28,554 overnight. Ethereum hovered around $1,780 early Monday after spiking to $1,845 late Sunday. BTC is up roughly 19% so far this month and 70% year-to-date.
MicroStrategy, the software company that's been spending billions on bitcoin, is up 82% year-to-date. Crypto exchange Coinbase skyrocketed more than 123% so far in 2023.
Bank Stocks
Regional banks were a mixed bag early Monday after following First Republic lower Friday.
PacWest Bancorp rose 11% Monday after shares spiked 18% after the open. New York Community Bancorp soared nearly 32%.
Zions Bancorp climbed 0.8% after dropping 6.8% Friday. Western Alliance fell 6.8% to erase its morning gains. PNC Financial rose 3%.
JPM stock gained 1% Monday, following its 3.8% retreat Friday. Wells Fargo slipped 0.7% after weakening 4% before the weekend. Goldman Sachs climbed 1.9%, having slipped 3.7% Friday.
You can follow Harrison Miller for more stock news and updates on Twitter @IBD_Harrison
