Wall St rebounds on reports about First Republic’s deal talks with big banks

NEW YORK: Wall Street’s main indexes reversed declines on Thursday after a report said some US 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 US 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.” US-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.

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.