Before the Bell: Good News for Regional Banks, Microsoft’s Activision Deal

Premarket action on Monday had the three major U.S. indexes trading higher. The Dow Jones industrials were up 0.10%, the S&P 500 up 0.61% and the Nasdaq 0.32% higher.

Nine of 11 market sectors closed higher on Friday. Utilities (3.12%) and real estate (2.57%) added the most. Consumer cyclicals (−0.35%) and financials (−0.06%) posted the day’s only losses. The Dow closed up 0.41%, the S&P 500 up 0.56% and the Nasdaq up 0.31% on Friday.

Two-year Treasuries were unchanged to end Friday at 3.76%, and 10-year notes were also flat to close at 3.38%. In Monday’s premarket, two-year notes traded at around 3.90% and 10-year notes at about 3.44%.

Friday’s trading volume was well below the five-day average. New York Stock Exchange winners outpaced losers by 1,863 to 1,134, while Nasdaq advancers led decliners by about 5 to 4.

Monday morning’s lead story is the acquisition of Silicon Valley Bridge Bank (SVB) by First Citizens BancShares Inc. (NASDAQ: FCNCA). First Citizens will pay $55.5 billion for SVB assets valued at $72 billion. Some $90 billion in securities and other assets will remain in receivership and be distributed by the FDIC. SVB’s 17 branches will open Monday morning as First Citizens Bank & Trust Company.

The bridge bank was created after the FDIC took over Silicon Valley Bank and put it into receivership. As of March 10, SVB had about $119 billion in deposits, all of which will be available to depositors day. Under the purchase and assumption agreement between the FDIC and First Citizens, the two have completed a loss-share transaction on the commercial loans included in First Citizens’ acquisition of SVB. The FDIC has estimated its cost related to the failure of SVB at about $20 billion. Shares of First Citizens traded up about 15% in Monday’s premarket.

The deal lifted shares of other battered regional banks. First Republic Bank (NYSE: FRC) traded up nearly 30% in Monday’s premarket, PacWest Bancorp (NASDAQ: PACW) traded up 11.5% and KeyCorp (NYSE: KEY) traded up more than 8%.  The complete roster of regional banks with rising stock prices early Monday is a close match for the last week’s list of losers.

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Silvergate Capital Corp. (NYSE: SI) soared by more than 50% on Friday and traded up nearly 19% more in Monday’s premarket. The first bank to fail in the current collapse cannot do much on its own to move its share price because it is winding down and liquidating. The action in the shares could be due to a short squeeze. Nearly 72% of the company’s stock was short as of Friday’s close. Short covering could account for the jump. The stock closed at $1.72 on Friday and traded at $2.04 in Monday’s premarket. More than 141 million shares were traded on Friday.

Activision Blizzard Inc. (NASDAQ: ATVI) rose 5.91% Friday to lead S&P 500 winners. Shares jumped after U.K. regulators said that they were no longer concerned that Microsoft Corp.’s (NASDAQ: MSFT) $72 billion acquisition of Activision would harm competition in the console gaming market. Sony Corp. (NYSE: SONY) has been leading the opposition to the deal, saying that it gives Microsoft no reason to allow other console makers access to Activision’s hugely popular Call of Duty franchise. Not because Microsoft is behaving generously; rather, restricting Call of Duty only to Xbox would be “significantly loss-making” for Microsoft. The spread between Microsoft’s $95 per share cash offer and Activision’s $84.38 closing price on Friday is the narrowest it has been since the deal was announced in January of last year.

The big event on this week’s economic calendar is Friday’s Bureau of Economic Analysis report on February’s personal income and outlays, including the personal consumption expenditures (PCE) inflation index, the Federal Reserve’s favored measure of inflation. Current estimates call for a drop in the rate of growth for both income and spending and for the month-over-month increase in the PCE index to fall from 0.6% in January to 0.4% in February. The PCE core index is expected to grow by 0.4%, compared to a January increase of 0.6%.

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