Billionaire investor Bill Ackman said Friday that Bank of America will buy Signature Bank on Monday, as bigger systemic banks continue in their efforts to rescue distressed smaller banks.
The CEO of Pershing Square Capital Management has recently campaigned for an unlimited system-wide guarantee on deposits, in contrast to Treasury Secretary Janet Yellen, who reaffirmed the $250,000 insurance cap this week.
Until a full deposit insurance is achieved, the cost of capital for smaller banks will rise, 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. Unless and until we can protect uninsured deposits, the cost of capital is going to rise for smaller banks pushing them to merge or be acquired by the SIBs. I don’t think this is good for America,” Ackman wrote on Twitter.
Signature Bank was the second bank to have collapsed after Silicon Valley Bank was shut down by the state of California. It is the third-largest bank failure after Washington Mutual and SVB.
Benzinga has contacted Bank of America for comment on Ackman’s remarks.
The hedge fund manager also said Twitter that First Republic Bank “default risk is now being spread to our largest banks” and added that “spreading the risk of financial contagion to achieve a false sense of confidence in FRB is bad policy.”
This isn’t the first time Bank of America had bought a failing financial institution. The bank bought Countrywide Financial at $4.1 billion during the subprime loan crisis in 2008. Countrywide financial was found guilty of defrauding Fannie Mae and Freddie Mac in 2013.
Bank of America participated in the consortium of large banks injecting a total of $30 billion into First Republic Bank this week.
Ackman downplayed the efficacy of the $30-billion capital infusion into FRB and stated that “half measures don’t work when there is a crisis of confidence.”
According to Goldman Sachs equity analyst Ryan Nash, the plan to inject capital into FRB will allow the firm to manage short-term deposit withdrawals in an orderly fashion, although earnings will likely be negatively impacted.
Bank of America, Citigroup, JPMorgan Chase & Co., and Wells Fargo were the main contributors to the FRC deposit injection, each providing $5 billion.
Goldman Sachs and Morgan Stanley each contributed $2.5 billion, while Bank of New York Mellon Corp, State Street Corp, PNC Financial Services Group Inc, Truist Financial Corp, and UBS Group AG each chipped $1 billion. Each bank provided 3% of its tangible common equity (TCE), Nash said in the note.
Friday was another bloodbath for banking stocks. FRC plunged 32%, WFC fell 4%, BAC was down 3.8%, JPM fell 3.7%, MS lost 3.4%, GS tumbled 3.3%, and C retreated by 3%.
The Financial Select Sector SPDR Fund lost 3% on Friday, underperforming versus all other sectors, and hitting the lowest level since mid-October 2022.
The SPDR S&P Regional Banking ETF fell 6% on Friday and has now shed 30% of its value in the last two weeks. KRE is trading at levels not seen since the COVID-19 vaccine was discovered in November 2020.
Produced in association with Benzinga