(Bloomberg) -- First Republic Bank plunged after S&P Global Inc. cut its credit rating for the second time in a week, missing out on a strong rebound by its regional bank peers led by New York Community Bancorp.
Shares of the struggling San Francisco-based bank slumped by as much as 22%, extending a recent rout that had taken First Republic down more than 80% in two weeks. Meanwhile, other mid-sized US lenders saw renewed interest from investors as New York Community Bancorp jumped by a record 40% after taking over Signature Bank's deposits and some of its loans. Western Alliance Bancorp rose 9.7%, while PacWest Bancorp gained 23% and the KBW Regional Banking Index added 3.6%.
“While this is the most serious bank crisis since 2008, the selloff is overdone, in our view, creating a buying opportunity for our Smid-Cap names,” Maxim analyst Michael Diana wrote in a note. Diana cut his price target on multiple firms — including buy-rated First Republic.
S&P lowered First Republic's long-term issuer credit rating to B+ from BB+, having already downgraded the lender to sub-investment grade, or junk, territory last Wednesday. The ratings agency said a recent $30 billion infusion from some of Wall Street's biggest lenders may not solve the “substantial” challenges the bank is now likely facing, even if it does ease near-term pressure on liquidity.
Investors worldwide are watching for signs of fresh troubles following the collapse of US Silicon Valley Bank and the deposit aid for First Republic. The episodes have sparked worries of deposit flight from regional banks, harming liquidity and potentially sparking a credit crunch.
“We believe this is one of the best risk/reward trade-offs in this group that we have seen in our 23-year career,” said Baird analyst David George, noting the KBW Bank Index's 15% drop last week. “The stocks are more inexpensive today than they were during the pandemic, and if you don't buy banks here, we aren't sure when you do.”
Wall Street's larger firms were mostly positive, with JPMorgan Chase & Co., Goldman Sachs Group Inc., and Citigroup Inc all climbing by 1% or more.
Shares of UBS Group AG erased losses of as much as 16% in European trading following its emergency Sunday takeover of Swiss rival Credit Suisse Group AG.
(Updates to add regular hours trading.)
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