Shares of PacWest and Western Alliance plunge as U.S. regional banking problems worsen

May 4 (Reuters) – Shares of PacWest Bancorp (PACW.O) and Western Alliance Bancorp (WAL.N) plunged on Thursday, dragging other regional lenders lower, amid reports of the two banks exploring strategic options raised concerns among investors about the widening financial crisis. crisis.

PacWest shares fell more than 40% in afternoon trading, falling to a record high. The bank had confirmed an earlier Reuters report on Wednesday that it was exploring strategic options, including a potential sale or fundraising.

Western Alliance shares pared losses after falling nearly 60% following a Financial Times report that the lender was exploring strategic options, including a potential sale of all or part of its business. Western Alliance denied the FT report, calling it “categorically false in all respects”, and said it was considering legal options against the newspaper. The bank’s shares fell 35% in afternoon trading.

Western Alliance sought to reassure investors of its financial stability. On Wednesday, he said he had not seen any unusual deposit outflows following Monday’s sale of collapsed lender First Republic Bank to JPMorgan Chase & Co .

The collapse of the First Republic, the third major casualty of the biggest crisis to hit the U.S. banking sector since 2008, reignited a decline in regional lender stocks this week despite regulatory efforts to stem the turmoil that began with the collapse of Silicon Valley Bank in March.

“Nobody knows where these banks should be trading because what we’ve seen with Silicon Valley Bank is that fundamentals can change so quickly,” said Tom Plumb, portfolio manager at Plumb Balanced Fund in Madison, Wisconsin. .

“It would normally have been a great opportunity to buy banks with a leading regional presence and it may be, but the real concern is that no one knows what the rules are and what they are rated against” , added Plumb.

Zion Bancorp (ZION.O) lost 12% and Comerica (CMA.N) fell nearly 11%. KeyCorp (KEY.N) and Valley National Bancorp (VLY.O) fell 7% and 4% respectively. The KBW Regional Banking Index (.KRX) fell 3.3%.

Big US banks were also losing ground on Thursday, with the S&P 500 Banks Index (.SPXBK) falling nearly 3%. Shares of JPMorgan fell 1.4%, while Bank of America (BAC.N) fell 3%.

The common theme among bank stocks that sold off strongly is that they signaled large declines in deposits in the first quarter, said Truist Securities analyst Brandon King, while calling the selloff “overdone.”

PacWest Bancorp announced a loss of $1.1 billion attributed to shareholders for the first quarter of the year.

Its shares have lost 72% of their value this year, making it one of the worst performers in the S&P 600 Index of Regional Small Cap Banks (.SPSMCBNKS), which has lost a third of its value over the past year. the same period.

In another sign of tension in the regional banking sector, First Horizon Corp (FHN.N) and The Toronto-Dominion Bank Group (TD.TO) announced on Thursday that they had agreed to end their 13-year merger, $4 billion due to uncertainty over obtaining regulatory approvals for the deal.

Shares of First Horizon plunged 32% after the news, while U.S.-listed shares of Toronto-Dominion Bank gained nearly 0.5%.

US Federal Reserve Chairman Jerome Powell reiterated on Wednesday that the banking system remained resilient despite “strains” in March, after the central bank announced a 25 basis point rate hike and signaled a pause in its tightening cycle. Powell also said bank deposits have stabilized.

“The Fed would of course react if a chaotic outflow of deposits from regional banks resumes,” Citigroup analysts wrote in a note to investors. “This risk is higher after recent banking developments and can never be completely taken off the table.”

Reporting by Medha Singh in Bengaluru; Editing by Vidya Ranganathan and Kim Coghill

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Chibuike primarily reports on large US-based private equity firms, including Blackstone, KKR, Carlyle and Apollo. He previously worked at Bloomberg News and holds master’s degrees in journalism from New York University and Edinburgh Napier University. Phone: 332-999-6154

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