May 4 (Reuters) – Shares of PacWest Bancorp ( PACW.O ) fell on Thursday, dragging other regional lenders lower after the Los Angeles-based bank’s plan to review strategic options sparked the concerns of investors in a widening financial crisis.
PacWest stock fell more than 40% in afternoon trading, falling to a record low. The bank confirmed an earlier Reuters report on Wednesday that it was exploring strategic options, including a potential sale or capital raising.
Western Alliance shared losses after falling nearly 60% following a Financial Times report that the lender was exploring strategic options, including a potential sale of all or part of its business.
The Western Alliance denied the FT report, calling it “categorically false in all respects,” and said it was weighing legal options against the newspaper. The bank’s stock was down nearly 35% in afternoon trading.
Western Alliance seeks to reassure investors about its financial stability. On Wednesday it said it did not see unusual deposit outflows following the sale of collapsed lender First Republic Bank to JPMorgan Chase & Co ( JPM.N ) on Monday.
The collapse of First Republic, the third major casualty of the biggest crisis to hit the US banking sector since 2008, fueled a further slide in shares of regional lenders this week though in regulatory efforts to stem the chaos that began with the collapse of Silicon Valley Bank in March.
US officials at the federal and state levels are assessing the possibility of “market manipulation” behind the big moves in banking rates in recent days, a source familiar with the matter told Reuters on Thursday.
“No one knows where these banks should trade because what we’ve seen at Silicon Valley Bank is that fundamentals can change very quickly,” said Tom Plumb, portfolio manager at Plumb Balanced Fund in Madison. , Wisconsin.
“It is usually a good opportunity to buy banks that have a major presence in the region and it can be done, but the real concern is that no one knows what the rules are and what they value,” added Plumb.
Zion Bancorp ( ZION.O ) fell 12% and Comerica ( CMA.N ) fell nearly 11%. KeyCorp ( KEY.N ) and Valley National Bancorp ( VLY.O ) fell 7% and 4%, respectively. The KBW Regional Banking index (.KRX) dropped 3.3%.
Major U.S. banks also lost ground Thursday, with the S&P 500 Banks index (.SPXBK) falling nearly 3%. JPMorgan shares fell 1.4%, while Bank of America ( BAC.N ) fell 3%.
A common theme among banking stocks that sold off heavily was that they reported large deposit declines in the first quarter, said Truist Securities analyst Brandon King, while calling the selloff “excessive.”
PacWest Bancorp reported a loss of $1.1 billion attributed to shareholders in the first quarter of the year.
Its shares have lost 72% of their value this year, making it one of the worst performers in the small-cap S&P 600 regional banks index (.SPSMCBNKS), which has lost a third of its value at the same time.
In another sign of stress within the regional banking sector, First Horizon Corp ( FHN.N ) and Toronto-Dominion Bank Group ( TD.TO ) announced on Thursday that they had agreed to end their $13.4 billion merger due to the uncertainty of obtaining regulatory approvals for the deal.
Shares of First Horizon fell 32% after the news, while US-listed shares of Toronto-Dominion Bank gained nearly 0.5%.
US Federal Reserve Chair Jerome Powell on Wednesday reiterated that the banking system remains stable despite “strains” in March, after the central bank delivered a 25-basis-point rate hike. and signaled a pause in its tightening cycle. Powell also said bank deposits are stabilizing.
“The Fed will of course react if a turbulent flow of deposits from regional banks continues,” Citigroup analysts wrote in a note to investors. “That risk has been heightened following the bank’s recent developments and will never be completely taken off the table.”
Reporting by Medha Singh in Bengaluru; Editing by Vidya Ranganathan and Kim Coghill
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