May 4 (Reuters) – PacWest Bancorp ( PACW.O ) shares fell on Thursday, dragging other regional lenders after the Los Angeles-based bank’s plan to explore strategic options fueled investor worries of a widening financial crisis.
PacWest’s stock fell more than 40% in afternoon trading, hitting record lows. The bank confirmed a Reuters report earlier on Wednesday that it was exploring strategic options, including a possible sale or capital raising.
Western Alliance’s shares plunged nearly 60% after the Financial Times reported that the lender is exploring strategic options, including a possible sale of all or part of its business.
Western Alliance denied the FT report, saying it was “categorically false in every respect” and said it was weighing legal options against the newspaper. Shares of the bank fell nearly 35% in afternoon trade.
Western Alliance has been trying to reassure investors about its financial stability. It said on Wednesday 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 in the US banking sector since 2008, reignited a slide in regional lenders’ stocks this week despite regulatory efforts to stem the turmoil 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 big moves in bank share prices 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 with Silicon Valley Bank is that fundamentals can change very quickly,” said Tom Plumb, portfolio manager at Plumb Balanced Fund in Madison, Wisconsin.
“It would normally have been a great opportunity to buy banks with a prime regional presence, which it could be, but the real concern is that no one knows what the rules are and what they’re valued at,” Plumb added.
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 Bank Index (.KRX) fell 3.3%.
Major U.S. banks also lost ground on Thursday, with the S&P 500 Banks Index (.SPXBK) falling nearly 3%. Shares of JPMorgan fell 1.4%, while Bank of America ( BAC.N ) fell 3%.
Truist Securities analyst Brandon King called the sell-off “excessive,” a common theme in bank stocks that saw a large deposit decline in the first quarter.
PacWest Bancorp reported a $1.1 billion loss to shareholders in the first quarter of this 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 over the same period.
In another sign of pressure in the regional banking sector, First Horizon Corp ( FHN.N ) and Toronto-Dominion Bank Group ( TD.TO ) announced on Thursday that they were suspending a deal due to uncertainty over obtaining regulatory approvals for a $13.4 billion merger. Agreement.
Shares of First Horizon fell 32% after the news, while shares of US-listed Toronto-Dominion Bank rose nearly 0.5%.
US Federal Reserve Chairman Jerome Powell on Wednesday reiterated that the banking system remains resilient despite “strains” in March after the central bank delivered a 25 basis point rate hike, signaling a pause in its tightening cycle. Powell also said that bank deposits have stabilized.
“If the chaotic outflow of deposits from regional banks resumes, the central bank will almost certainly act,” Citigroup analysts wrote in a note to investors. “That risk is much higher after recent banking developments and cannot be completely taken off the table.”
Medha Singh reports in Bangalore; Editing by Vidya Ranganathan and Kim Coghill
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