PacWest, Western Alliance stocks tumble as US banking concerns deepen

Shares of PacWest Bancorp slid in premarket trade on Thursday, dragging other regional lenders down, as news that the Los Angeles-based bank was in talks about strategic options spurred market fears of a worsening financial crisis.

PacWest slumped 38 percent, after having lost 29 percent since Monday. Reuters had reported on Wednesday that PacWest was exploring strategic options including a potential sale or capital raising, which the lender confirmed late in the day.

Western Alliance Bancorp shares slumped 15 percent despite its efforts to reassure investors that it had not seen unusual deposit outflows following the sale of collapsed lender First Republic Bank to JPMorgan Chase & Co on Monday.

First Republic’s collapse, the third major casualty of the biggest crisis to hit the U.S. banking sector since 2008, rekindled a slide in shares of regional lenders this week despite regulatory efforts to staunch the turmoil that began with the collapse of Silicon Valley Bank in March.

Zion Bancorporation tumbled 10 percent and Comerica fell 7.5 percent, while KeyCorp and Valley National Bancorp dropped 8 percent and 5 percent. The SPDR S&P Regional Banking ETF shed 3.7 percent.

The common theme among the banking stocks that have sold off sharply is that they reported large deposit declines in the first quarter with operations in California, said Truist Securities analyst Brandon King, while calling the selloff “overdone.”

PacWest Bancorp reported a loss of $1.1 billion attributed to shareholders for the first quarter of the year.

Its shares have lost 72 percent of their value this year, making it one of the worst performers on the small-cap S&P 600 regional banks index, which has lost a third of its value in the same period.

In another sign of stress within the sector, First Horizon Corp and Toronto-Dominion Bank Group agreed to call off their $13.4 billion merger on uncertainty over getting regulatory approvals.

First Horizon shares slumped 40 percent, while U.S.-listed shares of Toronto-Dominion Bank edged 1.4 percent higher.

U.S. stock index futures dipped 0.3 percent at 1200 GMT. The S&P 500 fell 0.7 percent on Wednesday.

Rescue efforts

Concerns about First Republic’s health had prompted top power brokers including U.S. Treasury Secretary Janet Yellen, Federal Reserve Chair Jerome Powell and JPMorgan CEO Jamie Dimon to put together an unprecedented $30 billion rescue deal in March, but that still fell short of restoring enough confidence in the bank to avert a failure.

“It was hoped that the First Republic’s assets being purchased by JPMorgan would stabilize the rest of the sector, but it’s still a question of confidence,” said Rick Meckler, partner at Cherry Lane Investments.

“I don’t think we want to be a country of just five huge banks, so the Treasury Department is going to have to get involved in trying to stabilize the situation a little bit more.”

The International Monetary Fund (IMF) has warned that the fundamental question confronting market participants and policymakers is whether recent banking turmoil was a sign of systemic stress or just the manifestation of tighter funding conditions after years of easy money.

U.S. Federal Reserve Chair Jerome Powell on Wednesday reiterated the banking system remains resilient despite “strains” in March, after the central bank delivered a 25-basis rate hike and signaled a pause in the tightening cycle was on the table.

Many investors thought falling inflation would be the main driver for a Fed pivot on rate hikes, but now, it’s likely to be compelled by rising risks of a recession and banking struggles, said Russ Mould, investment director at AJ Bell.

“Therefore, not a reason to celebrate.”