US Regional Banks Slump as Rout Deepens on First Republic Flop

Original article here.


(Bloomberg) — Regional US banking stocks headed for yet another day of heavy losses after the failure of troubled lender First Republic Bank this week leads investors to scrutinize the sector’s financial health.

PacWest Bancorp dropped 14% in US premarket trading after sliding 28% to a record low in the previous session, while Western Alliance Bancorp fell 7.8% following Tuesday’s 15% plunge. The situation may well be “more serious than we currently understand,” former Federal Reserve Bank of Dallas President Robert Kaplan told Bloomberg Television.

“Investors are clearly focusing on the negatives again with many bank stocks trading on deteriorating sentiment than deteriorating fundamentals,” Christopher McGratty, an analyst at Keefe, Bruyette & Woods, wrote in a note. McGratty added that Wednesday’s Federal Reserve interest-rate decision and press conference is now even more important given that confidence levels in banking have been shaken.

Stock markets more broadly saw gains ahead of the Fed’s expected interest-rate hike later in the day. Kaplan called on policymakers to pause their rate-hike campaign given the banking crisis may be far from over. First Republic, acquired by JPMorgan Chase & Co. on Monday in a government-led deal, is the fourth US lender to fail this year.

What’s more, bearish bets on regional banks have jumped appreciably in the last week, which may be adding to pressure in the shares. Short interest as a percentage of shares outstanding in the SPDR S&P Regional Banking ETF rose to 96% from 74% a week ago, according to data compiled by S3 Partners.

Bank Pain Is Just Getting Started, Ex-Fed President Kaplan Says

The KBW Regional Banking Index has lost 8% this week to hit its lowest since 2020. While First Republic’s troubles stemmed from bad investments and a run on the bank’s deposits, the likes of PacWest and Western Alliance posted results last month that showed their deposit bases had stabilized, an encouraging sign for investors.

Other mid-sized peers, such as Zions Bancorp and Truist Financial Corp, saw more limited stock losses on Wednesday.

“None of the banks within BofA’s banks coverage universe experienced anywhere close to the stress of the three failed banks,” Bank of America Corp. analysts including Ebrahim Poonawala said in a note on Wednesday. “However, a persistent sell-off in stocks has the potential to inform deposit customer behavior and worsen the profitability challenges faced by certain banks.”

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Patriotman currently ekes out a survivalist lifestyle in a suburban northeastern state as best as he can. He has varied experience in political science, public policy, biological sciences, and higher education. Proudly Catholic and an Eagle Scout, he has no military experience and thus offers a relatable perspective for the average suburban prepper who is preparing for troubled times on the horizon with less than ideal teams and in less than ideal locations. Brushbeater Store Page: http://bit.ly/BrushbeaterStore

One Comment

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