S&P 500: 19 Banks Grasp For $32.6 Billion Government Lifelife, Report

Investors are making their best guesses at which banks are in the worst shape in the S&P 500 and out. But new data point a clearer picture of where the pain is.

X

Nineteen banks, including PacWest Bancorp (PACW), East West Bancorp (EWBC) and Glacier Bancorp (GBCI), loaded up with $32.6 billion from the Federal Reserve’s new Bank Term Funding Program (BTFP) that offers liquidity, says a report by S&P Global Market Intelligence. This facility helps banks meet withdrawals even as they sit on losses on their investments.

The U.S. set up the BTFP following a number of high profile bank failures to help regional banks access cash without resorting to asset fire sales.

“For some, the program helped bolster liquidity after deposit runoffs in the first quarter while others used it to boost liquidity in case they need the cash in the future or to pay down higher-cost borrowings,” said Arpita Banerjee and Gaby Villaluz, the report’s authors.

Regional Banks: Got Cash?

Rapidly rising interest rates are squeezing some smaller banks. Many are forced to pay higher interest rates on depositors’ money. At the same time the value of their long-term interest-rate sensitive securities is dropping in value.

Borrowing from the BTFP is skyrocketing as a result, S&P Global Market Intelligence found. The debt balances under the program hit $81.3 billion as of April 26, up more than 600% from March 15.

The BTFP attempts to give banks access to cash to keep them going until they can adjust to higher rates. But even that isn’t enough to save some from the brink. First Republic Bank borrowed more than $13 billion from the BTFP, but still failed. JPMorgan Chase (JPM) bought the bank on May 1. The stock is down 99.7% this year.

Banks Take Security Blanket Of Cash

Other banks are making big use of the BTFP, too. PacWest is the next largest user of the fund, borrowing nearly $5 billion. That accounts for nearly 12% of its total liabilities, which is higher than any other user of the facility, S&P Global Market Intelligence found.

“PacWest Bancorp also reported an increase in Federal Home Loan Bank (FHLB) secured advances of $4.2 billion,” the report said. “As the company works to reposition and shrink its balance sheet, it prefers to bring down FHLB borrowings before BTFP balances.”

Shares of PacWest fell 86% this year.

Some banks taking the BTFP money are trying to head off issues.

East West Bancorp took $4.5 billion from the program. That’s the third highest among the banks, S&P Global Market Intelligence found. The bank is taking the money to cover it in case of a “rainy day” based on the flow of deposits and withdrawals, CFO Irene Oh said in a first-quarter conference call with investors. Shares of East West are down 36% this year.

Investors worry more bank trouble is ahead. But at least there’s data of where the money is going.

Biggest Bank Borrowers

Largest Bank Term Funding Program (BTFP) borrowers

Sources: S&P Global Market Intelligence, IBD