Global Courant 2023-05-05 00:11:52
Uncertainty continued to plague the banking sector, despite assurances from financial regulators and bankers like Jamie Dimon that the worst of the recent crisis is over and that the health of the banking system remains strong.
Shares of smaller regional lender PacWest Bank fell nearly 50 percent on Thursday after the company confirmed reports it was considering “strategic options,” which may include the possible sale of the company.
Los Angeles-based PacWest said in a statement that it did not experience any extraordinary 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 one-fifth the size of the three regional banks that have failed in the past two months: Silicon Valley Bank, Signature Bank and First Republic Bank. The bank experienced significant deposit outflows after the bankruptcy of Silicon Valley Bank in mid-March, but said deposits have risen since March 31, including in its venture banking division, which serves technology and startup companies.
Still, investors feared that PacWest’s fate could mirror that of another California bank – First Republic – which spent weeks looking for a buyer before failing on Monday. The troubled regional banks have seen heavy deposit outflows and need to raise capital. Almost all of them have large amounts of low-interest bonds and commercial real estate on their books, and would incur losses if they sold them on the open market.
Healthier banks are hesitant to step in to buy back distressed lenders. All Silicon Valley, Signature and First Republic assets were purchased after regulators seized these institutions and turned their remains over to the Federal Deposit Insurance Corporation.
In another sign of potential trouble for the banking sector, a major deal was called off on Thursday. TD Bank Group and First Horizon Corp said they called off a planned merger, citing regulatory hurdles. Toronto-Dominion Bank had said in February it was buying regional bank First Horizon in a $13.4 billion cash deal.
Western Alliance shares were among the most volatile, falling 39 percent as trading was halted. The Phoenix-based bank issued an overnight statement saying it had not experienced any unusual withdrawals and that its plans to adjust its balance sheet were in progress. On Thursday morning, The Financial Times reported that the bank is also considering strategic options. The bank strongly denied the report.
“Western Alliance is not exploring a sale and has not hired an advisor to explore strategic options,” a bank spokesman said.
Other regional banks will come under selling pressure on Thursday morning. Zions Bancorp was down 10 percent, Comerica was down 12 percent and KeyCorp was down more than 6 percent.
US officials at the federal and state levels are assessing the possibility of “market manipulation” behind major moves in bank stock prices in recent days, Reuters reported Thursday, citing an unnamed source familiar with the matter.
‘Tumultuous environment’
The Federal Reserve’s fight against inflation has played a key role in the banking turmoil. The Fed raised its key interest rate by a quarter point on Wednesday to its highest level in 16 years as part of that campaign, marking its tenth consecutive rate hike.
The higher rates have prompted savers to shift money into better-paying certificates of deposit and money market funds. They also played a role in the slowdown in the technology industry, which had a major impact on West Coast banks such as Silicon Valley.
Chairman Jerome Powell said the Fed would monitor several factors, including the turmoil in the banking sector, when making decisions about the next interest rate hike.
The chairman of the Fed stressed that he is convinced that the collapse of three major banks in the past six weeks is likely to cause other banks to tighten lending, which would help the Fed in its inflation battle. Powell also said the First Republic seizure was an important step toward “drawing a line under” the recent banking stress.
But some Wall Street analysts saw continued turbulence in the industry.
“Banks have endured a tumultuous environment over the past two months and uncertainty remains in the smaller regional banking segment,” JPMorgan told clients.
The company expected banking stocks to remain under pressure due to regulations and economic uncertainty, among other things.
“Regulatory concerns would primarily translate into how much banks need to add to capital, liquidity and debt, all of which would strengthen them in the long run but hurt (earnings per share),” it said.
