Billionaire investor Bill Ackman said Friday that Bank of America BAC will buy Signature Bank SBNY on Monday, as bigger systemic banks continue in their efforts to rescue distressed smaller banks.
The CEO of Pershing Square Capital Management has recently campaigned for an unlimited systemwide guarantee on deposits, in contrast to Treasury Secretary Janet Yellen, who reaffirmed the $250,000 insurance cap this week.
Until a full deposit insurance is achieved, the cost of capital for smaller banks will rise, forcing them to merge or be bought by bigger institutions, in Ackman's view.
“I am hearing that Bank of America is going to buy Signature Bank on Monday. Unless and until we can protect uninsured deposits, the cost of capital is going to rise for smaller banks pushing them to merge or be acquired by the SIBs. I don’t think this is good for America,” Ackman wrote on Twitter.
Benzinga has contacted Bank of America for comment on Ackman's remarks.
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Goldman Sachs Analyst Remains Optimistic: The hedge fund manager also said Twitter that First Republic Bank FRC's "default risk is now being spread to our largest banks” and added that “spreading the risk of financial contagion to achieve a false sense of confidence in FRB is bad policy.”
Bank of America participated in the consortium of large banks injecting a total of $30 billion into First Republic Bank this week.
Ackman downplayed the efficacy of the $30-billion capital infusion into FRB and stated that "half measures don't work when there is a crisis of confidence."
According to Goldman Sachs equity analyst Ryan Nash, the plan to inject capital into FRB will allow the firm to manage short-term deposit withdrawals in an orderly fashion, although earnings will likely be negatively impacted.
Bank of America BAC, Citigroup C, JP Morgan Chase & Co. JPM, and Wells Fargo WFC were the main contributors to the FRC deposit injection, each providing $5 billion.
Goldman Sachs GS and Morgan Stanley MS each contributed $2.5 billion, while Bank of New York Mellon Corp BK, State Street Corp STT, PNC Financial Services Group Inc PNC,
Truist Financial Corp TFC, and UBS Group AG UBS each chipped $1 billion. Each bank provided 3% of its tangible common equity (TCE), Nash said in the note.
Banking Stocks Continue Selloff: Friday was another bloodbath for banking stocks. FRC plunged 32%, WFC fell 4%, BAC was down 3.8%, JPM fell 3.7%, MS lost 3.4%, GS tumbled 3.3%, and C retreated by 3%.
S&P 500 financial companies: price performance on March 17, 2023. Chart: TradingView
The Financial Select Sector SPDR Fund XLF lost 3% on Friday, underperforming versus all other sectors, and hitting the lowest level since mid-October 2022.
The SPDR S&P Regional Banking ETF (NYSE: KRE) fell 6% on Friday and has now shed 30% of its value in the last two weeks. KRE is trading at levels not seen since the COVID-19 vaccine was discovered in November 2020.
KRE weekly price chart and RSI. Chart: TradingView
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