Wall Street Rebounds on First Republic Deal Talks

Wall Street’s main indexes reversed declines Thursday after a report said some U.S. big banks were in talks with First Republic Bank for a potential deal, while comments from Treasury Secretary Janet Yellen also boosted investor sentiment.

The report follows a 50 basis point rate hike by the European Central Bank which earlier in the day had dampened investor sentiment already hurt by fears of a banking crisis.

The Wall Street Journal report said JP Morgan Chase & Co. and Morgan Stanley were among banks in deal talks with First Republic Bank that could include a sizeable capital infusion and even a full takeover of the bank.

Shares of JP Morgan and Morgan Stanley rose 0.8% and 0.6% respectively, while shares of First Republic Bank were still down 26.9%.

First Republic Bank peers Western Alliance Bancorp and PacWest Bancorp were also down 2.1%. and 14.2%. respectively.

The KBW regional banking index slid 0.4%, while the S&P 500 banking index dropped 0.3%, but both sub-indexes had pared losses from earlier.

Meanwhile, Yellen said the U.S. banking system remains sound and Americans can feel confident that their deposits will be there when needed.

“A vote of confidence from Janet Yellen in talking about the soundness of the US banks was one of the pivot points for sure. Also, the news that there are a couple of major banks that are looking to bolster First Republic certainly seems to have calmed down that regional bank sell off this morning,” said Art Hogan, chief market strategist at B Riley Wealth.

“Underneath the hood, if you look at what’s been happening in the selling of banks, that money is actually not left at market. It seems to be moving into some well known large cap technology company companies, which is likely a positive.”

U.S.-listed shares of Credit Suisse ticked 3.2% higher after the bank secured a credit line of up to $54 billion from the Swiss National Bank to shore up liquidity and investor confidence.

Data showed the number of Americans filing new claims for unemployment benefits fell more than expected last week, pointing to continued labor market strength, which could persuade the Fed to keep raising rates further.

Weak retail sales figures as well as data showing a downward trend in producer inflation on Wednesday had bolstered bets of a small rate hike by the Federal Reserve at its meet concluding on March 22.

Money markets are still largely pricing in a 25-basis-point rate hike by the Fed in March..

At 11:31 a.m. ET, the Dow Jones Industrial Average was up 110.15 points, or 0.35%, at 31,984.72, the S&P 500 was up 36.60 points, or 0.94%, at 3,928.53, and the Nasdaq Composite was up 171.27 points, or 1.50%, at 11,605.33.

Facebook parent Meta Platforms and Snapchat operator Snap Inc rose 1.4% and 6%, respectively, after the Joe Biden administration threatened to impose a ban on TikTok.

Advancing issues outnumbered decliners by a 1.77-to-1 ratio on the NYSE and by a 1.50-to-1 ratio on the Nasdaq.

The S&P index recorded two new 52-week highs and 22 new lows, while the Nasdaq recorded 17 new highs and 187 new lows.

(Reporting by Shubham Batra and Amruta Khandekar in Bengaluru; additional reporting by Shristi Achar A; editing by Uttaresh Venkateshwaran and Vinay Dwivedi)