Why Bank Stocks Are Down Today According to an Investment Fraud Lawyer
The recent failure of Silicon Valley Bank has sent shockwaves through the banking industry and left many investors questioning the safety of their bank stocks. As a securities lawyer with 30+ years of experience, Jake Zamansky understands the concerns of investors. The Silicon Valley Bank failure impacts current bank stocks, as well as the future of this investment option.
Why are bank stocks down?
Bank stocks are down because depositors are pulling out their money because they’re worried about the safety of deposits given the recent news headlines. The collapse of Silicon Valley Bank and Signature Bank has led to concerns about the overall banking system, and that’s been killing regional banks like PacWest and First Republic. Even some of the bigger banks were down, but they’ve since recovered.
What’s the difference between a regional bank and a “big bank?”
“Big banks” refer to Citigroup, Morgan Stanley, JP Morgan, etc. These institutions have trillions of dollars in assets and millions of customers. The regional banks are much smaller and they have thousands of customers and fewer assets. Regional banks typically have a client base that isn’t so many big companies but rather small businesses and individuals.
Are bank stocks a good investment right now?
It is not for a lawyer to say, but you should be cautious. An investment fraud lawyer may be able to help you if you sold out and have incurred large losses in the banking sector. For example, there are people out there now who had a million-dollar portfolio and $300,000 was in bank stocks. These people have likely lost $100,000 in the last few weeks. They should entertain a phone call with a lawyer.
What is the outlook for regional bank stocks?
The outlook for regional bank stocks is not good. The industry is definitely concerned about another bank or two failing this week or next (mid-March 2023), which is why many investors are moving their money.
Why do banks fail?
Banks fail because as interest rates go up, the assets banks have on the books become worth less money. In the recent case of SVB, they had long-term treasuries on the books. They had 2% interest on a 10-year treasury, but now the interest rates are 5% to 6%. When someone wants to pull their money out of the bank, they have to produce those funds to give to you. In order to do so they sell assets to get the money but because of the changing interest rates, they lose money. If the bank has bought a 10-year treasury paying 2% and they have to sell a million dollars to give that depositor their money back. They’re not going to get the million back. They’re going to get $800K or $700K back and they’re going to take a loss. When you magnify that by billions of dollars, it amounts to a huge shortfall.
Can an investment fraud attorney do anything for someone impacted by the bank failure at SVB?
Generally, no, unless a Wall Street brokerage firm (think Morgan Stanly, Merrill Lynch, etc.) recommended that you purchase a large portion of SVB and other bank stock. If you purchased it yourself and have lost money, there’s nothing a lawyer can do for your investment loss.