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The purchase of ailing Credit Suisse by UBS provided little or no lift to U.S. banks on Monday, as worries about flight of deposits and further bank failures weighed on the sector.
U.S.-listed share of Credit Suisse
CS,
plunged 58% in premarket trades, while UBS Group AG
UBS,
dropped 5.8% after UBS said it would pay $3.25 billion to buy its Swiss rival to stabilize the banking system.
First Republic Bank
FRC,
dropped 14.5% in premarket trading, as it added to steep losses in the previous session.
The San Francisco-based bank is planning to raise money from other banks or private-equity firms by selling new shares, the New York Times reported late Friday, citing people with knowledge of the discussions.
While the bank received $30 billion in deposits from 11 banks last week, it lost $89 billion in deposits during the same period, according to numbers the bank released late Thursday.
S&P said Sunday that it cut its rating on First Republic by another three notches to B+, just four days after cutting it by four notches to BB+, the first speculative grade, or junk rating, from A-.
“The $30 billion in deposits that First Republic reported it will receive from 11 large U.S. banks should ease near-term liquidity pressures, but it may not solve the substantial business, liquidity, funding, and profitability challenges that we believe the bank is now likely facing,” S&P said.
A “B” rating at S&P means the entity is “more vulnerable to adverse business, financial and economic conditions but currently has the capacity to meet financial commitments.” The stock was on track to open below the $20 level, below the Oct. 3, 2011 record low close of $22.48.
Typically one notch of a downgrade equates to an increase of 0.25% in borrowing costs, but a multi-notch downgrade may impact a company even more as a sign of deeper trouble ahead.
J.P. Morgan Chase & Co.
JPM,
fell 0.7% in premarket trade, Goldman Sachs Group Inc.
GS,
rose 0.1%, while Bank of America Corp.
BAC,
rose 0.2% and Citigroup
C,
fell 0.1%. Wells Fargo & Co.
WFC,
moved lower by 0.8% and Morgan Stanley dipped 0.1%.
Among gainers, New York Community Bancorp Inc.
NYCB,
is rallying by 13.8% after its Flagstar Bank unit said it would assume most of the deposits and some of the loans of Signature Bank, which was one of the three financial firms to go out of business in the past two weeks.
The Federal Deposit Insurance Corp. said Flagstar will receive Signature Bank‘s 40 former branches as of Monday.
PacWest Bancorp
PACW,
rose 7% after it said Friday it has maintained solid liquidity.
Citi’s U.S. bank analyst Keith Horowitz said the firm has been “fielding a lot of inbound questions on whether deposits are leaving the system altogether.”
All told, about $325 billion has left the U.S. banking system from deposits, with much of it going into Treasurys, he said.
Horowitz said money used to buy Treasurys will in turn be spent by the government and “eventually gets recycled back into the system as deposits.”
Also Read: Fed to pause this week because of bank stress: Goldman Sachs
Tomi Kilgore and Claudia Assis contributed to this article.
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