Banks that saw share price declines of more than 10% on Tuesday included PacWest Bancorp, Western Alliance Bancorp., Comerica and Zions Bancorp.


Investor concerns about regional banks were supposed to ease after JPMorgan Chase’s emergency takeover of First Republic Bank.

But anxiety returned quickly on Tuesday, with a stock market crash that left few unscathed and several down double-digits. The falls raised new questions about what steps politicians should take to stop the panic that has so far engulfed three banks.

The banks that have failed were all unusual. Silicon Valley Bank focused on the technology sector. Signature Bank carved out a niche in crypto. And First Republic’s focus on catering to the wealthy turned out to be unfortunate, as regulators took over on Monday and then sold it to JPMorgan Chase.

But now concerns have resurfaced about several regional banks with simpler business models. The market is “trying to figure out who’s next” and risks failing, said Jeff Davis, managing director of Mercer Capital’s Financial Institutions Group.

“Price action like this should not be ignored,” Davis said. “As much as I think all is well, the market is telling us that there is more weed in the grass that needs to be removed.”

The regional bank most affected on Tuesday was PacWest Bancorp in Beverly Hills, California, whose shares fell nearly 28% to $6.55 a share.

Others that experienced big declines included Metropolitan Bank Holding in New York, which fell 20%; Western Alliance Bank. in Arizona, which lost 15%; Dallas-based Comerica, which fell 12%; and Zions Bancorp. in Salt Lake City, which lost almost 11%.

The falls came as Federal Reserve officials prepared to make their final interest rate decision on Wednesday and observers wondered if the central bank would signal an imminent pause in its rate hikes. While investors are expecting another 0.25% rate hike on Wednesday, many are also bracing for officials to stop there or even cut rates later this year.

The Fed’s aggressive hikes over the past year have been a key driver of the problems of failed banks, making the low-yielding bonds and mortgages they hoarded during the pandemic far less valuable. Other banks now face similar, if less severe, headaches.

Fed officials may be wary of easing too quickly, fearing that inflation could pick up speed again. The other side of the coin is that keeping rates high may mean more volatility is ahead for banks.

The sharp drop in bank share prices on Tuesday is probably not too worrying for bank regulators on its own, according to Isaac Boltansky, director of policy research at financial services firm BTIG. The concern is that the bank’s customers may worry and withdraw their deposits, even if recent earnings reports from the banks in question show their deposits have been largely flat.

“We are still dealing with numerous banks that have upside down balance sheets and concerns that, at any time, there could be massive deposit outflows causing stress,” Boltansky said.

Ian Lyngen, rates strategist at BMO Capital Markets, predicted headlines about Tuesday’s decline in bank shares will drive the agenda at Fed Chairman Jerome Powell’s post-meeting news conference on Wednesday.

In comments this week, CEOs of some of the country’s largest banks have sought to reassure to the public about the health of the regional banks.

After JPMorgan pounced on First Republic’s bailout on Monday, chief executive Jamie Dimon said that while “no crystal ball is perfect,” the industry is stable and regional bank deposits have held steady. “This part of the crisis is over,” he said.

And on Tuesday, Wells Fargo Chief Executive Charlie Scharf said the banks that have failed are “very, very different” from regional banks as a whole and that it “makes absolutely no sense” to lump them all together.

A couple of other banks with “questionable models” could be at risk of failure, Scharf said during a panel discussion at the Milken Institute conference. But “the reality is that most of the banks we looked at are still extremely strong and have large franchises,” he said.

JPMorgan’s purchase of First Republic was intended to assuage fears, but investors believe the crisis “is not behind us,” said Clifford Rossi, a professor at the University of Maryland School of Business.

“We are in an environment where deposits are willing to move at any time at the first sign of panic,” he said, adding that bank executives and regulators may not have fully grasped the “instantaneous” impact of the deposit runs in an era. of digital banking.

On Monday, the FDIC filed some long term options for the country’s deposit insurance program, including a recommendation to increase insurance limits for business accounts.

In the meantime, regulators should work with Congress to “enact some form of temporary deposit insurance, particularly for business and transactional accounts,” said John Popeo, a former FDIC and Fed official.

He pointed to the transaction deposit account guarantees that the FDIC put in place during the 2008 crisis as a model.

“This would go a long way to stabilize bank deposits until an updated deposit insurance regime is introduced,” Popeo, now a partner at The Gallatin Group, said in an email.

Tuesday’s big stock price declines didn’t hit the entire industry, but the SPDR S&P regional banking ETF was still down more than 6%.

With the earnings season ending, analysts note that deposits largely held up at all banks outside of the First Republic. Even PacWest and Western Alliance, which experienced significant outflows during the early stages of the banking run, reported that those outflows had leveled off.

Jon Arfstrom, an analyst at RBC Capital Markets, wrote in a note to clients on Tuesday that “we would be buying weakness” in PacWest and Western Alliance, given the stabilization of deposits.

“Overall, the large declines in our universe today do not reflect the strong, healthy balance sheets and minimal disruption to deposits in recent months, and for investors who favor other regional banks, we believe there is a bull case for many names.” dice recently. moves,” Arfstrom wrote.

Bradley Rinschler, managing partner of hedge fund Down Range Capital Management, still sees risk in certain bank stocks. He expressed concern about lenders having greater exposure to commercial real estate, less stable deposit bases and exposure to the pain that higher interest rates have inflicted.

Still, Rinschler sees opportunities in well-managed bank stocks. Recent stock price declines show investors are throwing out the “bathwater baby” and punishing bank stocks broadly, she said. Some banks are trading at deep discounts despite having strong deposit bases, significant capital levels and good dividends and buybacks, she said.

“This is a challenging environment, but I think there are some things here that are attractive,” Rinschler said.

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