![]() I have 4 reasons why I think First Republic specifically is an attractive stock investment. The inverted yield curve usually only occurs once every 10 years, so we are lucky to see this coming, as the prices of many bank stocks are currently favorable in my view. Yield Curve Marked For Peak-Trough of the SPDR S&P Regional Banking ETF (FRED and author's own visualization) ![]() This is not remarkable because the yield curve inverts when short-term interest rates are higher than long-term interest rates. In the image below, we see that the ETF enters the bear market after the yield curve inverted. Unfortunately, I do not have data prior to 2000. I have highlighted the -20% or more peak-to-trough moments of the SPDR S&P Regional Banking ETF ( KRE) in yellow in the yield curve chart. Now, less than 4 years after the COVID crisis, this opportunity presents itself again. I see that as a strong contrarian buying opportunity, which historically occurs about once every 10 years. When the yield curve inverts, it causes a decline in the equity market, and bank stocks are particularly vulnerable. In an earlier article, I pointed to a possible recession. I am not surprised that Silicon Valley bank is currently in trouble. This whole scenario reminds me of the 2008 financial crisis. What I am particularly concerned about is that the growth in innovation will decline, because Silicon Valley was the main bank for boosting start-ups. took over Silicon Valley Bank and it entered receivership after SVB Financial was shut down by California regulators. The withdrawal of deposits is disastrous for banks because they serve as collateral for loans. While Silicon Valley Bank was struggling due to rising interest rates and stagnant VC funding, the financial problems mainly arise in the bank run, many businesses and individuals were taking their cash out of the bank. ![]() The CEO of Y Combinator, Garry Tan, has also warned his network of start-ups that the solvency risk is real and that they too should reduce their exposure to the bank. Venture capital investors such as Founders Fund (Peter Thiel), Union Square, Tribe Capital and Founders Collective have advised their portfolio companies to place their cash elsewhere. Investors were also shocked and the stock price fell 60%. Depositors were shocked and pulled their money out of the Silicon Valley bank. The total value of this capital transaction is as much as $2.25 billion, and the company will use the net proceeds for "general corporate purposes." The total amount of $2.25 billion is significant because its market capitalization was only $16 billion (14%).ĬEO Greg Becker calmly addressed the stock markets, but things turned out very differently. In addition, General Atlantic will purchase $500 million of common stock in a separate private transaction at the price of the public offering. To avoid possible panic selling, the bank announced that it planned to offer $1.25 billion of common stock and $500 million of deposit shares. Available-for-sale securities are typically not sold until the company has an urging need for cash. This will result in an after-tax loss of $1.8 billion for the first quarter of 2023. On March 8, SVB Financial announced the sale of its available-for-sale securities portfolio and sold about $21 billion in government bonds and other financial products. The company is in financial trouble now that it has announced a proposal to raise cash and put the company up for sale. Its stock price crashed 60% this week, for good reason. SVB Financial is Silicon Valley’s holding company, a bank that specializes in financing start-up tech companies. The regional banking sector is down significantly, and it all started last week with problems at Silicon Valley bank. Silvergate, Silicon Valley, and Signature, all major banks with exposure to cryptocurrencies, have been shut down by regulators mostly due to large losses on sales of its securities portfolio. In my article I give 4 reasons why I like First Republic, and before that I give some insights into the market situation.ĭata by YCharts What Happened To The Markets The bank has strong fundamentals because it serves high net worth customers with 0% net loan charge-offs. What was particularly notable was the sharp decline of First Republic, which fell 80% from its peak. These financials all experienced sharp declines while their fundamentals were strong. I seized this opportunity and bought large positions in First Republic ( FRC), Comerica ( CMA ), Charles Schwab ( SCHW ), Western Alliance Bancorporation ( WAL ), PacWest Bancorp ( PACW ) and First Foundation ( FFWM ). With several bank stocks down significantly, investors might be wondering if this is a buying opportunity of a lifetime.
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