AFP
Shares of PacWest Bancorp were in free fall Thursday after the bank’s attempt to reassure investors fell flat amid another pummeling of US regional bank stocks.
Near 1600 GMT, shares of PacWest were down more than 50 percent.
Other leading banks were also on the back foot, including Western Alliance (-43 percent), Zions (-8.4 percent) and Comerica (-12 percent).
Large banks such as Citigroup and Bank of America had lost about three percent.
The rout comes after Monday’s sale of the embattled First Republic Bank to JPMorgan Chase under a process orchestrated by the Federal Deposit Insurance Corporation.
There had been hopes that the transaction would mark an end to the panic, but that did not materialize.
“We did not have an extended period of calm following the deal for First Republic,” said Oanda’s Edward Moya. “The bullseye moved from one bank to another and this space is in trouble.”
PacWest said the company and its board “continuously review strategic options,” according to a statement released late Wednesday.
The company “has been approached by several potential partners and investors — discussions are ongoing,” PacWest said. “The company will continue to evaluate all options to maximize shareholder value.”
PacWest characterized the stance as standard as a publicly traded company, “yet there is nothing normal about the stock’s reaction to this news,” said Briefing.com analyst Patrick O’Hare.
Investors are on edge for a repeat of earlier episodes in which deposit runs precipitated or played a significant role in the spate of bank failures in the last two months.
Attempting to allay worries about a similar episode, California-based PacWest said it “has not experienced out-of-the-ordinary deposit flows following the sale of First Republic Bank and other news.”
“Our cash and available liquidity remains solid and exceeded our uninsured deposits,” it said in a statement.
But in the first quarter, PacWest saw a 17 percent drop in deposits, according to results published on April 25.
Since early March, four US banks have closed or been taken over: Silvergate Bank, Silicon Valley Bank (SVB), Signature Bank and First Republic.
“I think this banking situation is going to be something we deal with for the rest of the year and possibly longer,” Moya predicted.
The banking industry as a whole has faced pressure from the Federal Reserve’s pivot towards significantly higher interest rates after a long period of low and near-zero interest rates.
That change has forced banks to pay out higher interest for deposits. While this affects all banks, regional banks are viewed as more vulnerable to deposit flight after the recent spate of failures, analysts say.
These midsized banks are also expected to face more scrutiny from regulators to show they have adequate liquidity, crimping their growth prospects.
On Wednesday, as the Fed raised its benchmark lending rate for a 10th time, the central bank’s head offered a hopeful outlook.
Fed Chair Jerome Powell described the US banking system as “sound and resilient,” alluding to the size of SVB, First Republic and Signature.
PacWest ranks 53rd on the list of US banks by assets, below the other banks, whose fates have been “resolved,” Powell said.
“I think that the resolution and sale of First Republic kind of draws a line under that period of — is an important step toward drawing a line under that period of severe stress,” Powell said.
But the selloff in regional bank shares shows the market’s skepticism of Powell’s view, “which seems to overlook the plodding but clearly apparent momentum of the problem,” said a note from DataTrek.
Some analysts expect the pressures on regional banks to spark more mergers.
But on Thursday, in another blow to the sector, First Horizon and TD Bank called off their merger, citing uncertainty on the timetable for regulatory approval.
Shares of First Horizon plunged 36 percent, while TD shares were flat.
