Regional bank shares sink in sign that crisis isn’t over yet
NEW YORK — Uncertainty continues to pummel the banking industry, despite assurances from financial regulators and bankers this week that the worst of the recent crisis is over and the health of the banking system remains strong.
Bank shares have sold off on Wall Street this week following the government seizure and subsequent sale of First Republic Bank to JPMorgan. It was the second-largest bank failure in U.S. history and the third failure of a midsize lender in two months.
While many thought the sale of First Republic “would stop the ‘who’s next?’ conversations, investors are clearly continuing to focus on remaining players that are deemed the weakest,” analysts at UBS wrote in a note to clients.
The bigger worry is that the bank failures might lead to doubts about relatively healthy banks, creating a financial contagion that could affect the wider economy.
Markets do not appear to have been reassured by prominent names in finance who say instability in the banking sector ended with the takeover Monday of First Republic Bank. JPMorgan’s CEO Jamie Dimon said Monday that he believed “this part” of the banking crisis was over. Federal Reserve Chair Jerome Powell vouched for the health of the financial system Wednesday.
Regardless of those assurances, a renewed sell-off Thursday focused on PacWest
Bancorp and Western Alliance Bancorp, two smaller regional banks whose shares have been under pressure since Silicon Valley Bank failed in mid-March and set off the current crisis. PacWest fell 38% after acknowledging it was considering putting itself up for sale.
But there was a significant sell-off in numerous regional banks, including Zions Bancorporation, Comerica, Truist, KeyCorp and Huntington.
The KBW index of regional banks has fallen 13% so far this week. PacWest was targeted because of a high concentration of large, uninsured deposits from venture capital and tech clients, the same type of customers who triggered bank runs at Silicon Valley and First Republic.
PacWest, based in Los Angeles, and Western Alliance, in Phoenix, each issued a statement overnight saying they weren’t experiencing any out-of-the-ordinary deposit withdrawals following the sale of First Republic, a classic bank run accelerated by social media and modern technology. Both saw significant withdrawals following the failure of Silicon Valley Bank, but say deposits have increased since March 31.
Western Alliance issued a separate statement Thursday morning denying a story in The Financial Times that said the bank is considering a sale.
Investors may fear that PacWest’s fate could mirror that of First Republic, which spent weeks looking for a buyer before failing.