Investing

Banking Sector Fallout Creates a Disjointed Market Response

Joshua Enomoto

Published: March 17, 2023 3:06 am

Last Updated: March 17, 2023 12:07 pm

Typically, a run on banks tends to generate panic among the masses, incentivizing people to grab whatever money they can before completely evaporating. Indeed, shocking images from Lebanon’s deep financial crisis reinforces anxieties associated with the loss of stability in monetary systems. It’s been different (thankfully) in the U.S. where the federal government took the extraordinary step of backstopping depositors’ funds.

As Fintel contributor Robert Lakin noted, Silicon Valley Bank (US:SIVB) and Signature Bank (US:SBNY) imploded over a few days last week. Subsequently, state regulators closed the troubled enterprises, with the Federal Deposit Insurance Corp. (FDIC) later assuming control. Further, a joint statement by the Treasury, Federal Reserve and the FDIC reassured depositors that their money will be protected, though no protection would be afforded to SIVB and SBNY shareholders.

On the March 13 session, several financial institutions, including Zions Bancorporation (US:ZION) and First Republic Bank (US:FRC) cratered. However, on the following day, many banks enjoyed sharp rises in valuation, in part on anticipation that the Fed will be reluctant to hike the benchmark interest rate next week, according to Reuters.

Notably, one of the core catalysts of the banking meltdown centered on an aggressive rise in interest rates. For Silicon Valley Bank, its deposit base involved heavy exposure to long-term Treasury and mortgage bonds, acquired at a time when yields were low, per ABC News. However, when yields spiked throughout 2022, Silicon Valley essentially sat on unrealized losses.

When the bank’s core client base of technology startups began feeling economic pressure, the rush for cash sparked a liquidity crunch.

Nevertheless, the U.S. government’s backstopping of clients’ funds failed to generate an even recovery in bank stocks. For instance, FRC gained 27% of equity value on the Tuesday session. This stands in stark contrast to the mere 4.5% move up for ZION.

Conspicuously, Fintel’s screener for unusual stock options volume also indicates a discrepancy in trading patterns. Following the close of March 14, FRC saw call volume reach 129,382 contracts whereas put volume hit 132,785. On the other end, ZION’s call volume came out to 9,795 contracts, roughly half of the 18,506 contracts posted on the column for put volume.

Also, Zions’ Insider Sentiment Score pinged at 36.50 at time of writing. According to Fintel, this multi-factor quantitative model identifies companies with the highest levels of insider accumulation. However, Zions’ score comes in below the average score of 50, implying lack of confidence among corporate insiders.

This article originally appeared on Fintel