Bill Ackman, a billionaire investor, said on Friday that Bank of America BAC will buy Signature Bank SBNY on Monday, as larger systemic banks continue to try to rescue distressed smaller banks.
The CEO of Pershing Square Capital Management recently campaigned for an unlimited systemwide guarantee on deposits, contrary to Treasury Secretary Janet Yellen, who has reaffirmed the $250,000 insurance cap this week.
Until a full deposit insurance is achieved, the cost of capital for smaller banks will go up, forcing them to merge or be bought by bigger institutions, in Ackman's view.
I am hearing that Bank of America is going to buy Signature Bank on Monday. The cost of capital is going to go up for smaller banks if they are forced to merge or be acquired by the SIBs unless and until we can protect uninsured deposits. I don't think this is good for America, Ackman wrote on Twitter.
Benzinga contacted Bank of America for comment on Ackman's remarks.
Elon Musk reacts as Bill Ackman Flags First Republic's Risk Spreading To Largest Banks: Astounding'
Goldman Sachs analyst Remains Optimistic: The hedge fund manager said that First Republic Bank FRC's default risk is now spreading to our largest banks and spread risk of financial contagion to achieve a false sense of confidence in FRB is bad policy. Bank of America invested $30 billion in First Republic Bank this week in a consortium of large banks.
Ackman downplayed the efficacy of the $30 billion capital injection into FRB and stated that half measures don't work when there is a crisis of confidence. The plan to inject capital into FRB will allow the firm to manage short-term deposit withdrawals in an orderly fashion, even though earnings will likely be negatively impacted, according to Goldman Sachs equity analyst Ryan Nash.
The FRC deposit injection was made up of five billion dollars provided by Bank of America BAC, Citigroup C, JP Morgan Chase Co. JPM and Wells Fargo WFC.
Goldman Sachs GS and Morgan Stanley MS contributed $2.5 billion each, while Bank of New York Mellon Corp BK, State Street Corp STT, PNC Financial Services Group Inc PNC, and others contributed a total of $2.5 billion.
Truist Financial Corp TFC, and UBS Group AG UBS each chipped $1 billion. Each bank provided 3% of its tangible common equity, TCE Nash said in the note.
FRC plunged 32%, WFC fell 4%, JPM fell 3.7%, MS lost 3.4%, GS fell 3.3% and C fell by 3%.
The Financial Select Sector SPDR Fund XLF lost 3% on Friday, underperforming compared to all other sectors, and hitting the lowest level since mid-October 2022.
The SPDR S&P Regional Banking Exchange Traded Fund NYSE: KRE fell 6% on Friday and has lost 30% of its value in the last two weeks. Since the COVID 19 vaccine was discovered in November 2020, KRE is trading at levels not seen before.