May 2 (Reuters) – US regional banks Bacoist Bancorp (PACW.O) and Western Alliance Bank (WAL.N) fell on Tuesday as the collapse of First Republic Bank (FRC.N) raised investor concerns about the bank’s financial health. Other lenders are medium sized.
JPMorgan Chase Bank (JPM.N) agreed Monday to acquire a majority of First Republic’s assets in a $10.6 billion deal after regulators seized the lender, which became the biggest US bank failure since the 2008 financial crisis.
Investors fear that the recent turmoil, which began with the failure of Silicon Valley Bank and Signature Bank in March, may spread to other regional banks.
The KBW Regional Banking Index (.KRX) fell 5.52%, marking its lowest level since December 2020.
“If a ‘crisis of confidence’ occurs at First Republic, it could happen to any bank in this country,” said Jake Dollarhyde, CEO of Longbow Asset Management.
“This is likely to be a big deal, which we hope will not materialize for anything significant,” he added.
Los Angeles-based PacWest fell more than 27%. It ranks 53rd among US lenders with assets of $41.2 billion at the end of last year, according to Federal Reserve data.
Western Alliance, the Arizona-based lender sank the 40th largest bank in the US with $68 billion in assets, down 15% while KeyCorp (KEY.N) in Cleveland, Ohio, the top 20 bank with $188 billion in assets, fell 9%. %. .
Comerica (CMA.N), a Dallas, Texas-based bank ranked 37th among US lenders with $86 billion in assets, down 12%. Columbus, Georgia-based Synovus Financial Corp. (SNV.N), with $60 billion in assets and the 42nd-largest bank in the US, lost nearly 7%.
Valley National Bankcorp (VLY.O), which owns Passaic, N.J.-based Valley National Bank, the 43rd-largest lender with $57 billion in assets, closed down 3% after tumbling more than 20% on Monday.
“Historically, once you see a solution to one institution, the market tends to go after whoever they see as the next weakest link,” said Ryan Nash, regional banking analyst at Goldman Sachs.
The exposure of regional banks to the commercial real estate sector, especially office buildings which currently enjoy high vacancy rates, has heightened investor concerns that loan losses may accumulate and exacerbate the current crisis amid rising interest rates.
Regional banks with $250 billion in assets held about $1.1 trillion in commercial real estate loans with maturities through 2027 as of the end of last year, according to real estate data analytics firm Trepp Inc.
“There may be some discounting on office loans and this is a market where regional banks have a lot of exposure,” Nash said.
Some analysts said JPMorgan Chase’s deal of First Republic’s assets ended the contagion risk. But others have pointed out that the deal makes the largest US bank even bigger, raising the risk of escalating a “too big to fail” problem that regulators have been trying to solve for years.
“While we believe this transaction underscores all of JPM’s key strengths, we can’t help but try to read what it means if our largest bank is the government’s first line of defense,” analysts at Evercore ISI wrote in a note.
The US Federal Reserve is expected to comment on the regional banking crisis at the end of the FOMC meeting on Wednesday, with markets anticipating a 25 basis point rally.
Phil Blancato, CEO of Ladenburg Thalmann Asset Management, said the sell-off was prompted by the threat of interest rate hikes which made the situation worse.
Additional reporting by Nikit Nishant and Jaiver Singh Shekhawat in Bengaluru; Editing by Subhranshu Sahu
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