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US banks fly at the opening of Wall Street

MADRID, 14 Mar.

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US banks fly at the opening of Wall Street


The price of the US banking sector, which had plummeted in recent sessions and led to the intervention this weekend by Silicon Valley Bank (SVB) and Signature Bank, registered strong general increases after the opening of Wall Street, particularly in the case First Republic Bank, one of the hardest-hit entities on Monday.

In this way, the shares of the San Francisco-based bank rose 63.3% after the opening of Wall Street, although with the passing of the minutes they moderated their climb to 48%.

Likewise, other small entities that were punished on Monday for fear of contagion saw their share prices rise sharply today, including PacWest (47.90%), Zions Bancorp (15.18%), KeyCorp (18.45%) and Western Alliance (43.50%).

On their side, the main banks in the United States also registered increases this Tuesday, although they showed less volatility than smaller entities.

In this way, Wells Fargo advanced 5.29%, Citigroup 5.30% and Bank of America 2.49%, while Goldman Sachs recorded a rise of more than 2%, Morgan Stanley 3.57 % and JP Morgan of 1.44%.

The credit rating agency Moody's has worsened its outlook on the US banking system, down to "negative" from "stable", to reflect the rapid deterioration in the operating environment after the collapse of entities such as Silicon Valley Bank (SVB) , Silvergate Bank and Signature Bank (SNY).

The risk rating agency considers that, although the Department of the Treasury, the Federal Reserve and the FDIC have offered support to the clients of the entities, the rapid and substantial decrease in the confidence of bank depositors and investors that this action precipitated clearly highlights the risks in US banks' asset and liability management, exacerbated by rapidly rising interest rates.

Thus, while the Fed's new Bank Term Funding Program (BTFP) is constructive, Moody's expects pressures to persist and be exacerbated by ongoing monetary policy tightening, as well as rising deposit costs, which will reduce the profits of banks, particularly those with a higher proportion of fixed-rate assets.

"Our base case is that the Fed's monetary tightening continues, which could deepen the challenges for some banks," the agency has indicated, for which those banks with lower latent losses, greater capitalization, diverse sectoral exposures and deposit bases granular policyholders will be more protected or will benefit from a "flight to quality".

Furthermore, Moody's anticipates that the US will enter a mild recession in the latter part of 2023, and that real GDP growth will remain below trend in 2024, with a gradual increase in the unemployment rate, which will allow for inflation to subside, allowing the Fed to move to a neutral policy stance in 2025.

Likewise, the Moody's agency has placed all the long-term ratings of First Republic Bank and five other small US entities (Comerica, Zions, UMB Financial, Intrust and Western Alliance) on review for downside.

This downgrade revision reflects the extremely volatile funding conditions being experienced by some US banks exposed to the risk of uninsured deposit outflows.

In the case of First Republic, the risk rating agency indicates that if it were to face deposit outflows greater than anticipated and liquidity support were insufficient, the bank could need to sell assets, thus crystallizing latent losses in its values, which could materially weigh on the bank's profitability and capital.