Western Alliance (WAL) earnings help to push up First Republic (FRC) stock

Western Alliance Bancorp (WAL) stock jumped 18% at Wednesday's opening bell to reach $38.41. That is a price level WAL stock has not reached since March 16, a few sessions after the regional bank sold off more than 80% on the Silcon Valley Bank failure. Western Alliance posted Q1 adjusted EPS of $2.30, besting Wall Street consensus by 27 cents a share. Revenue of $712 million also came in more than $45 million ahead of schedule.

The exuberance has drifted over to infect First Republic (FRC), which like Western Alliance has been dragged down over issues with deposits. FRC stock has moved up 2.3% at the open to $12.87. The back half of the Wednesday session could turn out worse though as the NASDAQ is off 0.6% in the first half hour of trading. Both the S&P 500 and the Dow are down to a lesser extent. 

Western Alliance earnings news

The market has mostly ignored GAAP earnings, which came in at $1.28 or 66 cents below analyst consensus. The discrepancy with the adjusted figure is due to a $110 million charge for selling assets in order to meet withdrawal needs and capital requirements. Many banks have had to sell low-interest securities at below par value due to the current high interest rate environment causing depositor flight to higher interest savings accounts and money market funds.

All eyes were captivated by the deposits figure of $47.6 billion. That number is down 9% YoY and more than 11% below the figure from the fourth quarter, but it still means that the bank is unlikely to go belly up anytime soon.

"While we experienced elevated net deposit outflows immediately following the closure of other banks, deposit balances quickly stabilized with Q1-end deposits of $47.6B," said CEO Kenneth Vecchione. "Since March 31, deposits increased an additional $2B through April 14, with total insured deposits representing 73% of total deposits."

The CEO's assurances helped the market realize that Western Alliance is most likely going to return to pre-March performance over the longer term. Certainly, Western Alliance is not in the same predicament as First Republic, which lost $70 billion in deposits and had to receive help from 11 large banks who made $30 billion worth of deposits in March. Western Alliance has a diverse set of customers, whereas First Republic has a much smaller slice of high-net-worth individual depositors. 

Those more wealthy clients are quicker to move their deposits at the first sign of banking tremors. Now both banks have a distinct new competitor in the form of Apple Pay. The payments arm of Apple (AAPL) released its new high-interest savings account in partnership with Goldman Sachs (GS) earlier this week. The 4.15% interest on the account will likely steal at least some depositors from regional banks as the average interest paid by normal banks in the US is below 0.4%. 

Western Alliance, First Republic stock forecasts

Western Alliance stock has quite a long road ahead until it fills the gap from March 9 at $61.37. Markets love to fills gaps, but this one could take until the end of the year since it will require a 60% gain on top of Wednesday's 18% move. The good news is that the stock is not close to being overbought at this time. In fact, WAL stock is in the middle of the Relative Strength Index (RSI) field, which is neutral. In the meantime, the 21-day moving average near $33 should provide support.

WAL daily chart

As opposed to WAL stock, FRC stock is not in recovery mode yet. On April 13 FRC stock crashed below the ascending lower trendline that was leading its recovery, and now the bank for rich people looks rather poor and desperate. First, FRC needs to break above the 9-day and 21-day moving averages, which are hovering in a range near $13.50 and $13.70. Then bulls need to push it back above the $14.75 resistance level from late March.

The only trick would be a successful Q1 earnings report on April 24. Wall Street expects a $0.52 GAAP EPS figure on revenue of $1.13 billion. The results could very well be all over the place, however, and the only thing that could produce Western Alliance's earnings surge would be news that depsositors are returning to First Republic Bank.

FRC daily chart