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Investors liked First Citizens Bank's deal to buy Silicon Valley Bank's deposits and loans.
What you need to know today
- First Citizens Bank is buying SVB assets worth $72 billion at a discount of $16.5 billion. Additionally, the Federal Deposit Insurance Corporation will share losses on SVB's commercial loans and provide a credit line to First Citizens. Investors liked the bargain First Citizens struck — its shares skyrocketed a staggering 53.74% on the news. That's a jump from $582.55 to $894.61.
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- The Dow Jones Industrial Average and S&P 500 rose Monday as regional banks rallied on improved sentiment. First Republic jumped 11.81%, KeyCorp added 5.31% and PacWest increased 3.46%. (All three stocks even rose marginally in overnight trading.) Asia-Pacific markets were mostly higher on Tuesday as well. Australia's S&P/ASX 200 climbed 1.04% as the Australian Prudential Regulation Authority said the country's banking system is "among the best equipped in the world to handle a crisis."
- Private equity deals in Asia-Pacific plunged 44% to $198 billion in 2022, according to Bain & Co. By contrast, the region's total deal value in 2021 was $354 billion. More bad news: 70% of fund managers surveyed expect the market to remain muted in 2024.
- Jack Ma, founder of Alibaba, has been spotted in China after spending months out of the country. Analysts think it's a sign Beijing's loosening its grip on the technology sector in its pursuit of economic growth this year. The U.S.-traded shares of Alibaba were last up 0.72% in after-hours trading.
- PRO The first quarter of 2021 is ending soon, which means another earnings season will begin shortly. Analysts think investors still haven't priced in tighter credit conditions — and should expect more companies to cut their guidance.
The bottom line
Investors are heaving a sigh of relief, and it's all about the banks.
First Citizens' purchase of SVB's assets was a bargain in monetary terms. More crucially, it signaled to markets that, despite SVB's financial difficulties, there was still value in SVB's reputation and relationship with its clients. There's hope, then, of reviving a dead bank — something that can happen only in an environment conducive to such miraculous feats.
Another troubled bank, First Republic, rallied after it was reported that U.S. authorities were considering giving the bank more time to shore up its liquidity. It might not need much more time, not only thanks to the $30 billion deposit promised to it by a coalition of banks, but also because the outflow of deposits from smaller banks to larger institutions has slowed in recent days, as sources told CNBC's Hugh Son.
And beleaguered KeyCorp, which tanked about 60% since the start of the banking turmoil, has a chance of surging 68.6%, according to Citi, which upgraded KeyCorp to buy from neutral.
The optimism was reflected in the SPDR S&P Regional Banking ETF (KRE), which rose about 0.87%. Major indexes — with the exception of the Nasdaq Composite (more on that in a moment) — closed the day in the green too. The Dow increased 0.6% and the S&P inched up 0.2%. The Nasdaq Composite, however, fell 0.5%.
Technology shares, which posted sterling gains as banks struggled the past two weeks, are now facing difficulties of their own. Alphabet slid 2.83%, Apple lost 2.8% and Meta fell 1.5%. Charles Schwab's Liz Ann Sonders noted the S&P 500 information technology sector's valuation, relative to the performance of the companies, has risen more than 30%. That's not a sign we're back in the pandemic days of sky-high tech valuation, but it's something to keep an eye on as the banking crisis (hopefully) gets contained.
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