May 4 (Reuters) – Shares of PacWest Bancorp (PACW.O) plunged on Thursday as investors fear a growing financial crisis as the Los Angeles-based bank plans to explore strategic options. After causing it, it dragged lenders in other areas.
PacWest shares fell more than 40% in afternoon trading, dropping to record lows. The bank confirmed in an earlier Reuters report on Wednesday that it was considering strategic options, including a potential sale or financing.
Western Alliance shares plunged nearly 60% before narrowing losses after the Financial Times reported that the financial institution was exploring strategic options, including the potential sale of all or part of its business. bottom.
Western Alliance denied the FT’s report, saying it was “absolutely wrong on all counts” and was considering legal options against the paper.The bank’s shares fell nearly 35% in afternoon trading.
Western Alliance has tried to reassure investors about its financial stability. On Wednesday, it said it had seen no unusual deposit outflows after failed lender First Republic Bank was sold to JPMorgan Chase (JPM.N).
The collapse of the First Republic, the third-biggest casualty of the biggest crisis to hit the U.S. banking sector since 2008, has spurred regulatory efforts to stem the chaos that began with the collapse of Silicon Valley Bank in March. Nonetheless, this week reignited a decline in regional lender stocks.
U.S. officials at the federal and state levels are assessing the possibility of “market manipulation” behind recent big moves in bank stocks, a source familiar with the matter told Reuters on Thursday.
“Since the fundamentals of Silicon Valley banks can change rapidly, it’s hard to know where these banks should trade,” said Tom Plum, portfolio manager at the Plum Balanced Fund in Madison, Wisconsin, USA. No one knows,” he said.
“This is usually a great opportunity to buy a bank with a strong local presence, and it could happen, but the real concern is that no one knows what the rules are and what they are valued at. I don’t know,” added Plum.
Zion Bancorp (ZION.O) is down 12%, while Comerica (CMA.N) is down nearly 11%. Keycorp (KEY.N) and Valley National Bancorp (VLY.O) fell 7% and 4% respectively. The KBW Regional Banking Index (.KRX) was down 3.3%.
The S&P 500 Banking Index (.SPXBK) fell nearly 3%, as did major US banks. Shares of JP Morgan fell 1.4 percent, while Bank of America (BAC.N) fell 3 percent.
A common theme in the plunging bank stocks is that deposits fell sharply in the first quarter, said Brandon King, an analyst at Truist Securities, who called the plunge “overdone.”
PacWest Bancorp reported a loss of $1.1 billion attributable to shareholders in the first quarter of this year.
The stock has lost 72% of its 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 over the same period.
In another sign of stress within the regional banking sector, First Horizon Corporation (FHN.N) and Toronto-Dominion Bank Group (TD.TO) said on Thursday the uncertainty over securing regulatory approvals. announced that it had agreed to cancel a $13.4 billion merger to transaction.
Shares of First Horizon plunged 32% on the news, while Toronto-Dominion Bank’s US-listed stock rose nearly 0.5%.
US Federal Reserve (Fed) Chairman Jerome Powell said on Wednesday despite the “tensions” in March after the central bank raised interest rates by 25 basis points and signaled a pause in the tightening cycle. He reiterated that the banking system remains resilient. Powell also said bank deposits were stable.
“The Fed would of course react if the unregulated deposit outflows from regional banks resumed,” Citigroup analysts wrote in a note to investors. It cannot be completely ruled out.”
Reported by Meda Singh, Bengaluru. Editing by Vidya Ranganathan and Kim Coghill
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