How Investors Can Navigate Banking Uncertainty As Deutsche Bank, First Citizens Bank And First Republic Bank Stock Seesaws

Key takeaways

• Bank stocks sold off heavily last week, as nervous investors ran for the exits over – well, basically nothing
• With no fundamental reasons for the sell off, they’ve rebounded swiftly on Monday
• First Citizens Bank is up over 45%, on news that it has acquired over $72 billion of assets from collapsed Silicon Valley Bank, at a discount of $16.5 billion

After the collapse of Silicon Valley Bank and Signature Bank, as well as the weekend fire sale of Credit Suisse to rival UBS, Deutsche Bank was in the headlines last week as the latest in the financial sector to come under pressure.

There have been numerous analysts and public commentators expressing concerns over the banking sector, worried about whether the initial collapses were a sign of a financial crisis brewing underneath the surface.

As well as large banks like Deutsche Bank, regional banks have been hit particularly hard. First Republic Bank stock is down almost 90% over the past month, Western Alliance Bancorp is down 55.52% and Zions Bancorporation is down over 44%.

Despite all this negativity, and Deutsche Bank stock selling off as much as -13.94% on Friday, bank stocks have rallied to start the week.

Deutsche Bank is up almost 6% in early hours trading, First Republic Bank is up 25% in premarket trade and PacWest Bancorp is up 11%.

First Citizens Bank stock has gained over 50% in premarket trading, but this has been driven by the news that they’ve purchased $72 billion worth of assets from defunct Silicon Valley Bank at a discount of $16.5 billion.

So with sentiment swinging on the daily, how should investors approach the banking sector right now?

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The latest news in the banking sector

There’s been a lot to unpack in banking over the past week. We saw a lot of bad news circling around concerns of a potential banking contagion, and then to kick this off we’ve seen a range of positive news headlines.

It’s enough to give investors whiplash. Here’s a rundown of the latest:

Deutsche Bank

Despite their stock falling almost 14% at one point Friday, there’s actually been very little concrete information to drive this selloff. In many ways, it’s simply indicative of the nervousness surrounding banking stocks at the moment.

The only real news on Deutsche Bank prior to the slide was of the bank undertaking some bond buybacks at a price below face value which required approval from the regulators. All in all a very minor and uninteresting development that surely didn’t warrant such a large selloff.

It appears as if the volatility was more likely as a result of spillover concern from another major European bank – Credit Suisse. This saw a spike in Deutsche Bank credit default swaps, which jumped 200 basis points, the highest since 2019.

JPMorgan Chase & Morgan Stanley

This sentiment wasn’t just impacting European banks, with many US-based financial institutions also suffering from stock slides on Friday as a result of the default swap price spike of Deutsche Bank.

JPMorgan stock was down around 3% on Friday, before recovering to close down around 1.8%. Morgan Stanley fared worse, hitting a daily low of -6.55% before finishing the session down 5.57%.

Again, there weren’t any standout headlines or announcements that caused these stock prices to fall. Emotion and sentiment are in the driver’s seat in the banking sector right now.

First Citizens Bank

Finally, some actual tangible news. First Republic Bank stock soared on Monday morning on news that they’d acquired the bulk of Silicon Valley Bank’s assets at a massive discount. In total they’d managed to pick up $72 billion worth of deposits and loans, at a discount of $16.5 billion.

It’s a major win for the bank and its shareholders, who saw their stock gain over 50% in premarket trading.

First Republic Bank

Another bank that’s been in the headlines for all the wrong reasons lately is First Republic. Their stock price has been smashed and is down almost 90% over the past month. With that said, shareholders have finally experienced some good news, with the company trading up almost 14% on Monday morning.

It comes off the news that regulators may look to expand their new liquidity program, which would help First Republic Bank in the short term as they look for a buyer.

The regulators banking safety net

No bank or company or investment is ever 100% safe. The recent uncertainty around banking has made many depositors and investors nervous, which is why the regulators, government and FDIC have stepped in to provide security to the sector.

As part of their announcement of the closing down of Silicon Valley Bank and Signature Bank, a new facility was announced to help provide liquidity for banks.

It will allow them to access capital for certain long term bonds, without having to sell these down at the current market rates. It’s not a blanket offer that only certain long term, low risk bonds qualify, but it’s a major safety net in avoiding widespread banking insecurity.

Even so, we’re likely to continue to see consolidation and volatility in the banking industry, as emotion takes control of investors’ hip pockets.

The bottom line

For investors, diversification has never been more important. Banks are generally considered to be some of the most stable and boring businesses there are. And yet, shareholders are having a terrible time right now.

It just goes to show that no sector is immune from volatility. At certain times the best returns will be found in banking, at others in tech, sometimes pharmaceuticals and sometimes manufacturing. There’s no way to know exactly when these will be winners and when they’ll be losers.

The best approach from an investment standpoint is to have exposure to all of them. That way you can ride the gains on the way up, and minimize exposure to losses on the way down.

But diversification shouldn’t just be limited to different sectors. It’s also worth considering different asset classes, like commodities, bonds, real estate or even crypto, as well as equity markets in different countries as well.

For investors who want access to a wide range of assets, but want to get the edge on the market, Q.ai’s Active Indexer Kit provides investors with a huge amount of diversification, with the potential for gains while also managing risk.

Every week, our AI analyzes the portfolio and rebalances the Kit automatically. It means you can set and forget, while knowing that your money is being managed for you.

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