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Worsening banking crisis in the U.S.: bankruptcy of First Republic Bank and the reaction of the PRC stock market to it

In March 2023, the U.S. was hit by a major banking crisis affecting three major banks - Silicon Valley Bank (SVB), Silvergate and Signature Bank. Such a shock did not go unnoticed and is still putting pressure on the financial and services sector.

In this regard, shares of First Republic Bank (FRB) recently fell as much as 43.3% on the premarket, which, expectedly, led to the bank's bankruptcy. FRB became the second-largest bankrupt in U.S. history after SVB. As a result, as experts say, this regional lender came under the control of U.S. regulators and was sold to JPMorgan Chase in order to restore confidence in customers. After such a step JPMorgan shares showed a growth of 2%.

At the moment FRB bank has 500 million unrealized losses on bonds, which significantly increases the pressure on the U.S. banking sector. Investors are concerned about such figures, as there is a risk of declining shareholder value, reduced dividend payments, loss of investment, and a potential decline in confidence in the issuer.

In contrast to the turmoil in the local market, the Chinese stock market is weakly affected by the FRB bankruptcy. For example, the Hang Seng index lost 1.6 percent in the moment, while the Hang Seng Tech index fell only 2.1 percent. At the same time, shares of major Chinese banks HSBC and ICBC lost 0.7% and 1.2% respectively. Alibaba Group and Tencent shares showed the maximum decline among technological companies - 2.9% and 2.6% respectively.

Our experts believe that despite these shocks, JPMorgan's acquisition of First Republic Bank's assets and deposits can be seen as a positive step toward stabilizing the market and restoring confidence in the industry. As for PRC, the consequences of the U.S. bank collapses have little impact on the local stock market. Therefore, the PRC remains an attractive investment destination.