PacWest (PACW) and Western Alliance (WAL) plunged on Tuesday.
The roughly 39% and 21% declines in morning trading came a day after JPMorgan Chase (JPM) bought most of First Republic (FRC).
Other regional banks also plunged, including Zions (ZION), Comerica (CMA) and Key (KEY).
PacWest and Western Alliance are among the local banks that have come under intense investor scrutiny, along with First Republic, following the March 10 and March 12 failures of Silicon Valley Bank and Signature Bank.
Both lenders, like First Republic, lost a significant amount of deposits in the first quarter. This was because customers perceived the safety of the big banks and wanted higher yields than those offered by money market funds. PacWest lost his 17% of deposits, Western Alliance lost his 11% and First Republic lost 41%.
Also, both PacWest and Western Alliance reported declines in key profitability metrics. This indicates that regional banking operations are becoming more difficult as funding costs and interest rates rise.
Several bank executives, including JPMorgan Chief Executive Jamie Dimon, tried Monday to argue that concerns over the banking system should be alleviated by the foreclosure and sale of First Republic: “Crisis” This part of the is over,” he said.
Another major bank CEO, Citigroup (C)’s Jane Fraser, expressed “a definite sense of relief” in an interview with Yahoo Finance on Monday. She called First Republic “the last remaining major uncertainty for the few banks that have failed at asset-liability management.”
One of the new pressures on these banks could be short sellers betting that certain lenders will go down in value. These investors have made substantial profits from such bets on First Republic and Silicon Valley Bank.
“Antelopes are prowling for the lions here, and they’re trying to find something else to attack and bring down,” Dick Bove, a financial strategist at Odeon Capital Group, told Yahoo Finance on Monday. and predicted that other banks would still fail.
Investors are looking for banks with large portfolios of fixed-rate mortgages, lots of commercial real estate, and gaps between the bank’s actual value and its advertised value.
“People made a ton of money,” he said. “Those who bankrupted SVB, those who profited from Signature’s failure, those who slowly died benefiting from First His Republic, made a ton of money.
“They are looking around for another target.”
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