Investors breathed easier on Monday after a weekend auction found a buyer for troubled First Republic Bank, though some said they were worried the crisis in regional banks is not over and hedge funds bet other dominos may still fall.
As Wall Street money managers, banking executives and pension fund managers gathered at the Milken Institute Global Conference, the main topic over cocktails on Sunday night and in conference rooms the following morning was JPMorgan Chase & Co's purchase of First Republic Bank.
"There is a little bit of a tendency to breathe a sigh of relief on mornings like this and I think we got through that," David Hunt, chief executive of global asset manager PGIM said at the conference.
Actually, the drama may be "just starting," he said.
Policymakers, executives and investors at the conference said constrained lending as a result of banking sector regulation could choke off credit to the economy.
For hedge funds, many of whom have spent weeks betting regional bank stocks would fall further, the scenario has created a chance to add new short positions or keep existing ones, several executives at large funds said.
Shares of several regional lenders fell on Monday, a sign that investor nerves were still on edge after First Republic’s collapse, the third major casualty of the biggest crisis to hit the U.S. banking sector since 2008.
Senior banking executives said they were gauging how aggressive short-sellers might be in coming weeks and which of the regional banks might be burdened with significant loans for office real estate at a time many buildings are standing empty as employees continue to work from home.
"The real estate we're more worried about is more of the bottom end of the stack of CMBS (commercial mortgage-backed securities)," Citigroup Chief Executive Jane Fraser told a panel. "It will be a stress point for sure."
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