Dow Sinks 400 Points As Top Banks Shed Another $54 Billion

Topline

Major stock indexes plummeted yet again Friday as investors seemed largely skeptical of a government-backed plan for large banks to save the slumping First Republic bank, which many feared was little more than sticking a Band-Aid on a gash and risking spreading the infection to others.

There was not a pot of gold in sight on Wall Street this St. Patrick’s Day.

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Key Facts

The Dow Jones Industrial Average fell 400 points, or 1.2%, its fourth drop of more than 1% over the last two weeks, during which the index sank 5%.

The S&P 500 and tech-heavy Nasdaq were similarly weighed down by bank stocks, with each index falling more than 0.5% on Friday.

Bank stocks big and small collapsed Friday, a day after a plan for 11 of the nation’s largest banks to make $30 billion in uninsured deposits at First Republic was made public, but fell flat with investors.

The capital infusion is little more than a “short-term solution,” UBS analyst Erika Najarian wrote in a Friday note to clients, adding bank stocks will “truly settle only after the market feels as if there is a longer-term solution for [First Republic]

Shares of the 10 largest U.S. banks by market capitalization each fell 2% or more Friday, losing $54 billion in market value, while regional bank stocks suffered staggering declines, led by First Republic’s 33% drop, wiping out the sector’s broad gains Thursday.

There will be “financial volatility at times in the months ahead” even as lawmakers try to convey “broad-based financial stability,” said Vanguard’s chief global economist Joe Davis.

Crucial Quote

Bank stocks “could continue to bounce around these low levels until the market sees hard data of balance sheet strength, which may not come until earnings season in April,” Najarian warned, adding: “There are no accountants in a foxhole.”

Key Background

A trio of U.S. banks shut between last Wednesday and Sunday: California-based Silicon Valley Bank and Silvergate Capital and New York-based Signature Bank. Many worried San Francisco-headquartered First Republic was in danger of becoming the next institution to go under, with its stock collapsing as much as 85% over the course of four trading sessions and the bank getting downgraded to junk by credit ratings agencies. The $30 billion capital infusion, heralded by Fed Chairman Jerome Powell and Treasury Secretary Janet Yellen as a “most welcome” step, was panned by others including billionaire hedge fund manager Bill Ackman, who said he’s “extremely concerned” the new exposure to First Republic could lead to “financial contagion” to spread.

Big Number

$223 billion. That’s how much market cap the 10 largest American bank stocks have lost since last Wednesday.

What To Watch For

Ackman tweeted Friday afternoon he’s “hearing” Bank of America will acquire Signature Bank on Monday, without providing the source of his information. Bank of America shares were little moved, maintaining a 4% loss.

Contra

Bitcoin is up more than 20% since last Wednesday as crypto bulls bought into the largest decentralized currency as confidence in the American banking system sputtered. Bitcoin rose 4% on Friday to $26,860, hovering near a six-month high. It could be “the beginning of a bull market” for bitcoin if it ends Friday at over $26,000, bitbank analyst Yuya Hasegawa wrote in a Friday note.