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PacWest (PACW) and Western Alliance (WAL) plunged Tuesday as investors remained convinced the worst is not yet over for troubled regional banks.
Their drops of roughly 39% and 21% in morning trading come one day after JPMorgan Chase (JPM) purchased the bulk of First Republic (FRC), in a deal that was designed to restore stability to the banking system after two months of turmoil.
Other regional banks also plummeted, including Zions (ZION), Comerica (CMA) and Key (KEY).
PacWest and Western Alliance were among the regional banks along with First Republic that came under intense investor scrutiny following the March 10 and March 12 failures of Silicon Valley Bank and Signature Bank.
Both lenders, like First Republic, lost a sizable amount of deposits during the first quarter as customers sought the perceived safety of larger banks or higher yields being offered by money market funds. PacWest lost 17% of its deposits and Western Alliance lost 11%, while First Republic lost 41%.
Both PacWest and Western Alliance also reported drops in a key measure of profitability, a sign that the regional banking business is becoming more challenging as funding costs and interest rates rise.
Several bank executives tried to argue Monday that concerns about the banking system should lessen with the seizure and sale of First Republic, including JPMorgan CEO Jamie Dimon: “This part of the crisis is over,” he said.
Another big bank CEO, Jane Fraser of Citigroup (C), on Monday cited a “a palpable sense of relief” during an interview with Yahoo Finance. She called First Republic “the last remaining main uncertainty of the small handful of banks that did not do a good job with asset liability management.”
One new point of pressure on these banks could be short sellers who are betting on certain lenders to go down in value. These investors made a tidy profit from such bets on First Republic and Silicon Valley Bank.
“The antelopes are being prowled by the lions here and the lions are going to find other ones to attack and bring down,” Dick Bove, financial strategist with Odeon Capital Group, told Yahoo Finance Monday, predicting other banks would still fail.
Investors, he said, are looking for banks that have large portfolios of fixed-rate mortgages, a lot of commercial real estate, and a gap between the bank’s real values and published values.
“People made a huge amount of money,” he said. “Those people who have driven SVB out of business, who benefitted from the Signature failure, who benefitted from the First Republic slow die, they made a lot of money.
“They are looking around to find another target.”
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