PacWest Bancorp, First Horizon Corp. and Western Alliance Bancorp led a renewed slide in the shares of US regional lenders, adding to concern for a sector that’s been rattled in recent months by the collapse of multiple firms.
(Bloomberg) — PacWest Bancorp, First Horizon Corp. and Western Alliance Bancorp led a renewed slide in the shares of US regional lenders, adding to concern for a sector that’s been rattled in recent months by the collapse of multiple firms.
The latest upheaval started Wednesday evening after a report that PacWest is exploring strategic options. The bank plunged 51% Thursday, the most on record, to its lowest close ever after saying it’s in talks with potential investors and partners. Western Alliance tumbled 38%. It pared a drop of as much as 62% after saying a report that it’s exploring strategic options including a potential sale is “categorically false.”
“We believe the banks are having their GameStop-like moment, where social media is amplifying non-traditional approaches to assessing solvency,” Jaret Seiberg, TD Cowen analyst, wrote in a note. “This creates a self-fulfilling prophecy that pressures stock prices, which then leads to more questions.”
The KBW Regional Banking Index slumped, extending this year’s rout to 31%. The volatility Thursday as Western Alliance denied the Financial Times report “highlights the fragility of the market,” Bloomberg Intelligence analyst Herman Chan wrote.
“The narrative of the bank space has drifted from fundamentals to baseless speculation,” Hovde Group analyst Ben Gerlinger wrote in a note. The slide in Western Alliance shares offers a “rare once in an economic cycle entry point into a best of breed banking franchise,” he said.
Meanwhile, First Horizon tumbled 33%, the most since 2008, after saying it and Toronto-Dominion Bank mutually agreed to terminate their merger pact amid uncertainty around regulatory approvals.
Investors including hedge fund billionaire Bill Ackman are warning that stresses on the banking system are far from over. Still, some analysts caution that the plunge has gone too far, reflecting more concern than is justified by fundamentals.
“The recent selloff in regional bank stocks is overdone as price action has been disconnected from fundamentals,” Truist Securities analyst Brandon King wrote in a note. “While we continue to acknowledge challenges ahead from funding costs and normalizing credit losses, first-quarter results and the stabilization of deposits should have eased investor concerns of a more stressed situation.”
Fed Chair Jerome Powell said Wednesday that the government seizure and sale of First Republic Bank to JPMorgan Chase & Co. was “an important step toward drawing a line” under the turmoil for regional lenders.
Betting against US regional bank stocks has proved lucrative for short-sellers, who have about $7 billion in paper profits this year, according to data from S3 Partners.
PacWest said in a statement that core deposits have risen since March, and it “has not experienced out-of-the-ordinary deposit flows following the sale of First Republic Bank and other news.” Insured deposits rose to 75%, the firm said.
Western Alliance said late Wednesday that it hasn’t seen unusual deposit flows following First Republic’s collapse. Insured deposits represent over 74% of its total, the company said.
Larger US lenders also declined Thursday, with the KBW Bank Index dropping 3.8%. Goldman Sachs Group Inc. fell 2.3% as its role in Silicon Valley Bank’s attempt to raise funds in March is under review in a US probe.
The Federal Deposit Insurance Corp. plans to hit big banks with fees to refill its insurance fund, while exempting smaller lenders, according to a Bloomberg News report.
–With assistance from Carmen Reinicke.
(Updates shares, FDIC plans and charts.)
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