US regional lenders fall after second largest American bank failure

Shares in US regional banks were under pressure on Monday after regulators mobilised a deal for JPMorgan Chase to buy struggling lender First Republic.

Citizens and PNC both dropped more than 5 per cent shortly after the opening bell, while shares in PacWest traded choppily. The KBW regional bank index slid by 0.8 per cent.

Trading in First Republic shares was halted, having tumbled more than two-fifths in pre-market trading. The bank’s market value had slid sharply last week as fears intensified about its ability to survive.

The moves came after the Federal Deposit Insurance Corporation and California regulators announced early on Monday morning that they were closing down beleaguered bank First Republic and selling off all $93.5bn of its deposits and most assets to JPMorgan.

The deal for First Republic, which will see JPMorgan pay the FDIC $10.6bn, wipes out all of First Republic’s shareholders and marks one of the biggest bank failures in America’s history — second only to Washington Mutual in 2008.

Most major markets in Europe and Asia were closed for a holiday.

US stock markets were subdued overall as investors awaited the Federal Reserve’s next interest rate decision on Wednesday. The S&P 500 was up 0.1 per cent, while the technology-heavy Nasdaq Composite slipped 0.1 per cent lower.

The central bank is expected to deliver a quarter point rate rise after its upcoming meeting, taking its target-range to 5 to 5.25 per cent, as policymakers continue to tackle rapid price growth. Later in the week, a nonfarm payroll report will be scrutinised for clues on whether the Fed’s efforts have started to slow the labour market and wage gains.

In government debt markets, the policy-sensitive two-year Treasury yield added 0.03 percentage points to 4.1 per cent and the benchmark 10-year yield added 0.03 percentage points to 3.48 per cent, as the prices of both bonds edged lower.