By
Temitope Olatunji
April 16th, 2024
PacWest and Western Alliance banks recorded heavy losses on Tuesday as the market is still reeling from problems caused by recent collapses.
Shares of bank holding company PacWest (NASDAQ: PACW) led a heavy crash in bank stocks on Tuesday. The stock tumbled nearly 28% as the general banking clime continues to sour following bank failures plaguing the sector.
PacWest stock closed at $6.55 after falling 27.78% on the day. In addition to PacWest, Arizona-based Western Alliance Bancorp (NYSE: WAL) also crashed yesterday. WAL fell more than 15% and lost nearly $6 to close the day at $30.93. Both banks set off multiple volatility halts as their values continually crashed.
The SPDR S&P Regional Banking ETF (KRE) also lost 6.3% yesterday.
Apart from PacWest and Western Alliance, there were several other noticeable crashes in banking stocks. For instance, Metropolitan Bank Holding Corp. (NYSE: MCB) fell 20%, while Zions Bancorp (NASDAQ: ZION) and Comerica Inc. (NYSE: CMA) both lost 11% and 13%, respectively.
PacWest Stock Crash Follows US Banking Woes
Analysts and economists are still unsure about the main reason for the crash. Interestingly, the crash came a day after JPMorgan CEO (NYSE: JPM) Jamie Dimon said the ongoing turmoil in the banking sector could be over soon. He said this after JPMorgan purchased the failed First Republic Bank (NYSE: FRC).
JPM successfully acquired all First Republic deposits and quite a few of its shares. In April, First Republic crashed more than 93% year-to-date (YTD). The crash disposed of all company gains in the past 10 years. In Q1, the bank’s revenue was $1.2 billion, a 13.4% loss year over year (YoY). Diluted earnings per share was $1.23, falling 39% from Q1 in 2022. Deposits also dropped 35.5% YoY to $104.5 billion.
Although there is some respite to the First Republic problem, Wells Fargo & Co. analyst Mike Mayo believes the worst is not yet over. According to Mayo:
“The resolution of First Republic helps to ease concerns but not eliminate them. A triple dose of negative sentiment is impacting the regionals: commercial real estate, diversification and regulation.”
According to earnings published in April, PacWest and Western Alliance have numbers that have kept investor discomfort at bay. Both banks seem to have deposits that are now stable following fears from March outflows. However, investors are still paying close attention, especially after the recorded collapses of Signature Bank, Silicon Valley Bank, and Silvergate Capital Corp.
Bloomberg Intelligence analyst Herman Chan has said that although the FRC resolution is good, there is still another problem. Chan believes that there is still a palpable lack of confidence in regional banks. A possible solution would be a “more holistic response” from authorities.
For RBC Capital Markets analyst Jon Arfstrom, there might be light at the end of the tunnel for PacWest, Western Alliance, and Comerica. Arfstrom, suggests buying the dip regardless of the negative sentiment.