PacWest (PACW) and Western Alliance (WAL) both fell on Tuesday as investors remain convinced the worst is far from over for the ailing regional banks.
Their drops of more than 20% in morning trade came a day after JPMorgan Chase (JPM) bought the bulk of First Republic (FRC), in a deal designed to restore stability to the banking system after two months of turmoil.
Other regional banks also declined, including Zions (ZION), Comerica (CMA) and Key (KEY).
PacWest and Western Alliance were among the financial institutions, along with First Republic, that came under intense scrutiny from investors in the wake of the March 10-12 failures of Silicon Valley Bank and Signature Bank.
Both lenders, such as First Republic, lost a significant amount of deposits during the first quarter as customers sought the perceived safety of larger banks or the higher returns offered by money market funds. PacWest lost 17% of its deposits, Western Alliance lost 11%, and First Republic lost 41%.
PacWest and Western Alliance also reported declines in a key measure of profitability, a sign that regional banking is becoming more difficult as funding costs and interest rates rise.
Several bank executives tried to argue Monday that concerns about the banking system should lessen with the takeover and sale of First Republic, including JPMorgan CEO Jamie Dimon: “That part of the crisis is over,” he said.
The CEO of another large bank, Jane Fraser of Citigroup (CI), on Monday cited a “palpable sense of relief” during an interview with Yahoo Finance. It described the First Republic as “the last major uncertainty left for a small handful of banks that haven’t done a good job of managing assets and liabilities”.
One of the new pressure points for these banks may be short sellers who bet on certain lenders to fall in value. These investors made good money on these bets on First Republic and Silicon Valley Bank.
“The lions are being paddled with antelopes here and the lions will find other ones to attack and bring down,” Dick Bove, a financial strategist at Odeon Capital Group, told Yahoo Finance Monday, predicting that other banks will still fail.
He pointed out that investors are looking for banks that have large portfolios of fixed-rate mortgages, a lot of commercial real estate, and a gap between the real values of the bank and the declared values.
He said, “People have made a lot of money.” “Those people who put SVB out of business, who profited from a signature failure, who profited from First Republic Die Slowly, made a lot of money.
“They are looking for another target.”
The downward pressure on some bank stocks may not lead to outflows from retail customers, but it could lead to more corporate customers, said Ryan Nash, managing director of regional banks at Goldman Sachs.
“It’s really starting to raise red flags and cause corporate treasurers and CFOs to say, ‘You know what, maybe I should consider diversifying,'” Nash added.
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