Absolute chaos in the financial sector.

The government may have stepped in to rescue depositors — but investors still aren’t convinced of the safety of regional banks, worried they could also see similar mass withdrawal of deposits.

This sent bank stocks collapsing yesterday. Less-diversified regional banks holding the most uninsured deposits fell the most.

Banks are trying to calm depositors and investors:

• Western Alliance Bancorp (NYSE:WAL) said yesterday that insured deposits exceeded over 50% of total deposits and saw moderate withdrawals.
• First Republic Bank (NYSE:FRC) tried reassuring investors — saying it had $70B in available capital from JPMorgan and the Federal Home Loan Bank to fund operations.

Like SVB, First Republic is no small potato — with $213B in assets at the end of 2022.

Unlike SVB, First Republic isn’t concentrated in one industry and has a smaller bond portfolio (BBG).

UBS says only 8% of First Republic’s deposits are from venture capital/private equity-related businesses/funds (vs. SVB’s 52%).

Are banks in trouble?

No matter how strong a financial institution is, “pretty much no bank can withstand a full bank run,” — per Interactive Broker’s Chief Strategist (YF).

And regional banks aren’t in the clear yet:

• Even if they avoid an SVB-like fate, their earnings could be in jeopardy if deposits continue falling.
• After this incident, businesses will likely diversify their cash across several banks — or move deposits towards tier 1 banks.

Ripple effects: Regional bank First Horizon (NYSE:FHN) — who’s in the process of being acquired by Toronto-Dominion Bank (NYSE:TD) for $13.4B — fell 20% yesterday.

FHN

is now trading 38% below its buyout price, and analysts are questioning whether TD will walk away or renegotiate.