Uncertainty continued to batter the banking industry, despite assurances from financial regulators and bankers like Jamie Dimon that the worst of the recent crisis is over and the health of the banking system remains strong.
Shares of smaller regional lender PacWest Bank plunged nearly 50 percent on Thursday after the company confirmed reports it was considering “strategic options,” which may include a possible sale of the company.
Los Angeles-based PacWest said in a statement that it was not experiencing 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 failed in the past two months: Silicon Valley Bank, signature bank and Bank of the First Republic. The bank experienced significant deposit outflows after Silicon Valley Bank failed in mid-March, but said deposits have risen since March 31, including at its venture banking division, which services tech and start-up companies. creation.
Still, investors feared that PacWest’s fate could be similar to that of another California bank, First Republic, which spent weeks looking for a buyer before failing on Monday. Troubled regional banks have seen strong deposit outflows and need to raise capital. Almost everyone has large amounts of low-interest bonds and commercial real estate assets on their books and would post a loss if they sold them on the open market.
The healthier banks have been reluctant to step in to buy up troubled lenders. All Silicon Valley, Signature and First Republic assets were purchased after regulators seized these institutions and their remnants were transferred to the Federal Deposit Insurance Corporation.
In another sign of potential trouble for the banking industry, a major deal was called off on Thursday. TD Bank Group and First Horizon Corp said they have called off a planned merger, citing regulatory hurdles. Toronto-Dominion Bank had said in February that it was buying regional bank First Horizon in a $13.4 billion all-cash deal.
Western Alliance shares were among the most volatile, down 39 percent when trading was halted. The Phoenix-based bank issued a statement overnight saying it has not experienced any unusual withdrawals and that its plans to reset its balance sheet are underway. On Thursday morning, The Financial Times reported that the bank was also considering strategic options. The bank flatly denied the report.
“Western Alliance is not exploring a sale, nor has it 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 percent, Comerica fell 12 percent and KeyCorp fell more than 6 percent.
US officials at the federal and state levels are assessing the possibility of “market manipulation” behind the large moves in bank share prices in recent days, Reuters reported on Thursday citing an unnamed source familiar with the matter.
‘Tumultuous atmosphere’
The Federal Reserve’s fight against inflation has played a key role in the banking turmoil. The Fed on Wednesday raised its key interest rate by a quarter point to the highest level in 16 years as part of that campaign, his tenth consecutive rate hike.
Higher rates have prompted depositors to move money into higher-paying certificates of deposit and money market funds. They also played a role in the slowdown in the tech industry, which had major implications for West Coast banks like Silicon Valley.
Chairman Jerome Powell said the Fed would monitor several factors, including turmoil in the banking sector, when deciding its next rate move.
The Fed chair stressed his belief that the collapse of three big banks in the last six weeks would likely cause other banks to tighten lending, and that would help the Fed in its fight against inflation. Powell also said the First Republic seizure was an important step in “drawing a line under” recent banking stress.
But some analysts on Wall Street saw continued turmoil in the industry.
“Banks have weathered a tumultuous environment over the past two months and uncertainty remains in the smaller regional bank segment,” JPMorgan told clients.
The firm anticipated that bank shares would continue to be pressured due to regulatory and economic uncertainty, among other factors.
“Regulatory concerns would mainly translate to how much banks should add to capital, liquidity and debt, all of which would strengthen them in the long run but hurt (earnings per share),” he said.