US regional banks plunge as investors fear crisis is not over | Business and Economy News

Uncertainty continued to weigh on the banking sector, despite assurances from financial regulators and bankers such as Jamie Dimon that the worst of the recent crisis is over and the health of the banking system remains strong.

Shares of small regional lender PacWest Bank plunged nearly 50% on Thursday after the company confirmed reports that it was considering “strategic options”, which could include the possible sale of the company.

Los Angeles-based PacWest said in a statement it was not experiencing any unusual deposit withdrawals and still plans to sell some assets to free up cash on its balance sheet.

With $44 billion in assets, PacWest is about a fifth the size of the three regional banks that have failed in the past two months – Bank of Silicon Valley, Signature Bank And Bank of the First Republic. The bank saw large deposit outflows after Silicon Valley Bank defaulted in mid-March, but said deposits had increased since March 31, including at its venture banking division, which serves technology companies and start-ups.

Still, investors feared PacWest’s fate could mirror that of another California bank – First Republic – which spent weeks searching for a buyer before failing on Monday. Troubled regional banks have seen large deposit outflows and need to raise capital. Almost all have large amounts of low-interest bonds and commercial real estate assets on their books, and would incur losses if sold on the open market.

Healthier banks have been reluctant to step in to buy struggling lenders. All assets of Silicon Valley, Signature and First Republic were purchased after regulators seized those institutions and their remains were transferred to the Federal Deposit Insurance Corporation.

In another sign of potential problems for the banking sector, a major agreement was canceled on Thursday. TD Bank Group and First Horizon Corp said they called off a planned merger, citing regulatory hurdles. The Toronto-Dominion Bank said in February it was buying regional bank First Horizon in a $13.4 billion all-cash deal.

Western Alliance shares were among the most volatile and were down 39% when trading was halted. The Phoenix-based bank released a statement overnight saying it had not experienced any unusual drawdowns and that its balance sheet readjustment plans were underway. On Thursday morning, the Financial Times reported that the bank was also considering strategic options. The bank strongly denied the report.

“Western Alliance is not considering a sale and has not engaged an advisor to explore strategic options,” a bank spokesperson said.

Other regional banks are under selling pressure on Thursday morning. Zions Bancorp fell 10%, Comerica 12% and KeyCorp more than 6%.

U.S. federal and state officials are weighing the possibility of “market manipulation” behind big moves in bank stock prices in recent days, Reuters reported on Thursday citing an unnamed source familiar with the matter.

“Tumultuous Environment”

The Federal Reserve’s fight against inflation played a key role in the banking turmoil. The Fed on Wednesday raised its key rate by a quarter of a point to the highest level in 16 years as part of this campaign, its tenth consecutive rate hike.

The higher rates prompted depositors to transfer money to higher-paying certificates of deposit and money market funds. They also played a role in the downturn in the tech industry, which had major implications for West Coast banks such as Silicon Valley.

Chairman Jerome Powell said the Fed would be watching several factors, including turmoil in the banking sector, in deciding its next rate decision.

The Fed Chairman underlined his belief that the collapse of three major banks over the past six weeks will likely prompt other banks to tighten lending, which would help the Fed in its fight against inflation. Powell also said the seizure of the First Republic was an important step in “drawing a line under” the recent banking crisis.

But some Wall Street analysts have seen continued turbulence for the industry.

“Banks have weathered a tumultuous environment over the past two months and uncertainty persists in the small segment of regional banks,” JPMorgan told clients.

The company expected bank stocks to continue to come under pressure due to regulatory and economic uncertainty, among other factors.

‚ÄúRegulatory concerns would primarily translate to how much banks need to add to capital, liquidity and debt, which would strengthen them in the longer term but hurt them. [earning per share],” It said.

Leave a Comment