WALL Street was set to open lower on Friday as investors remained wary about a potential banking crisis even as the country's largest banks came to the rescue of troubled regional lender First Republic Bank.
Big banks including JPMorgan Chase & Co and Morgan Stanley threw a $30 billion lifeline to First Republic on Thursday, calming some nerves and helping Wall Street's main indexes notch gains, with the tech-heavy Nasdaq rallying over 2%.
Shares of First Republic, however, extended their fall in premarket trading, dropping 20.1%, after the bank suspended its dividend payout.
The lender's shares have taken a beating this week, slumping 58%, after the recent collapse of SVB Financial and Signature Bank unleashed fears of a broader banking crisis stemming from surging interest rates.
SVB Financial said on Friday it had filed for a court-supervised reorganization under Chapter 11 bankruptcy protection to seek buyers for its assets, days after its former unit Silicon Valley Bank was taken over by U.S. regulators.
Peers PacWest Bancorp fell 9.4% before the bell, while Western Alliance slid 7.1%.
Big U.S. banks were also down, with JPMorgan and Citigroup and Wells Fargo sliding 1.7%, 2.1% and 2.1%, respectively. "Deposits have fled from regional banks like First Republic into the big banks who are now bailing them out by putting the deposits back in. But it doesn't solve the problem," said Thomas Hayes, chairman at Great Hill Capital LLC.
"Until you stop the deposit flight from regional banks into the systemically important banks that are too big to fail, it doesn't matter how much money you pour into the bucket."
The news of the rescue came on the heels of a 50-basis-point rate hike by the European Central Bank (ECB), which remains laser-focussed on taming inflation despite concerns about the region's banks after troubles emerged at Credit Suisse.
European Central Bank supervisors saw no contagion to euro zone banks from the recent market turmoil, a source said.
Investors are now looking ahead to the Federal Reserve's interest rate decision, due next week, to gauge how it will tame inflation.
Treasury yields fell on Friday, with the yield on the two-year note, which best reflects rate expectations, at 4.03%.
Money market participants now see a 70% chance of the Fed raising rates by 25 basis points on March 22.
Investors will monitor February industrial production data and the University of Michigan's consumer sentiment survey for March to assess the strength of the U.S. economy.
At 8:45 a.m. ET, Dow e-minis were down 242 points, or 0.75%, S&P 500 e-minis were down 27.5 points, or 0.69%, and Nasdaq 100 e-minis were down 32 points, or 0.25%.
Despite a roller-coaster week, Nasdaq appears set to log its biggest weekly percentage gain since November depending on the day's moves.
On a positive note, shares of FedEx Corp rose 11.5% premarket after the delivery giant raised its full-year earnings forecast, helped by cost cuts. - Reuters
