Renewed uncertainty in the banking sector has led to increased price volatility and lending demand in several regional banking securities. Orbisa data adds context to the dynamic situation as it unfolds.
Several weeks following the collapse of Silicon Valley Bank, another major domino fell as regulators made the move to seize control of First Republic Bank (FRC) and facilitate the sale of the firm to JPMorgan Chase (JPM).
The deal, announced on May 1, 2023, marked the second-largest U.S. bank failure since the financial crisis and sees JPMorgan purchasing the majority of First Republic’s assets. From a securities lending perspective, shares in First Republic experienced increased volatility in the cost to borrow in the week leading up to its sale. Orbisa’s 1-week fee volatility metric, which measures the average day-over-day fee change for the preceding week, was just 99 basis points (bps) on Monday, April 24. By Thursday, April 27, this metric exploded to 4,907 bps.
Demand and Fee Volatility continued to climb for shares of FRC leading up to the acquisition by JPMorgan Chase. The primary axis denotes percentage while the secondary axis denotes fee volatility in basis points.
The First Republic takeover further fanned the flames of investor uncertainty, with several regional banks facing challenges to stay afloat. PacWest Bancorp (PACW), whose stock has already been battered in 2023, at one point lost 50% of its value on Thursday. Other regional banks including First Horizon (FHN), Metropolitan (MCB) and Western Alliance (WAL), also faced significant selloffs in the first week of May and remained under a global microscope.
Looking at Orbisa data, lending activity increased across each of the previously mentioned securities. In particular, Western Alliance had the third-largest on-loan delta of all tracked securities as an additional 12 million shares were lent in the past week.
Shares on loan and utilization of WAL rose dramatically in the first week of May. The primary axis denotes quantity of shares while the secondary axis denotes percentage.
Orbisa continues to monitor movements in the securities lending market as participants react to shifts in the banking landscape.
—
Originally Posted May 9, 2023 – The Impact of More Banking Turbulence on Securities Lending
Disclosure: Orbisa
ORBISA (the “Firm”) is not registered as an investment advisor or otherwise in any capacity with any securities regulatory authority. The information contained, referenced or linked to herein is proprietary and exclusive to the Firm, does not constitute investment or trading advice, is provided for general information and discussion purposes only and may not be copied or redistributed without the Firm’s prior written consent. The Firm assumes no responsibility or liability for the unauthorized use of any information contained, referenced or linked to herein. © 2023 EquiLend Holdings LLC. All rights reserved.
Disclosure: Interactive Brokers
Information posted on IBKR Campus that is provided by third-parties does NOT constitute a recommendation that you should contract for the services of that third party. Third-party participants who contribute to IBKR Campus are independent of Interactive Brokers and Interactive Brokers does not make any representations or warranties concerning the services offered, their past or future performance, or the accuracy of the information provided by the third party. Past performance is no guarantee of future results.
This material is from Orbisa and is being posted with its permission. The views expressed in this material are solely those of the author and/or Orbisa and Interactive Brokers is not endorsing or recommending any investment or trading discussed in the material. This material is not and should not be construed as an offer to buy or sell any security. It should not be construed as research or investment advice or a recommendation to buy, sell or hold any security or commodity. This material does not and is not intended to take into account the particular financial conditions, investment objectives or requirements of individual customers. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.
Join The Conversation
If you have a general question, it may already be covered in our FAQs. If you have an account-specific question or concern, please reach out to Client Services.