More regional banks under siege in the wake of First Republic failure
Zachary Halaschak
Video Embed
Regional bank stocks plunged heavily on Thursday as turmoil in the banking system continues after JPMorgan Chase’s purchase of the failed First Republic Bank.
First Republic Bank was seen as the most likely next domino to fall amid the chaos of Silicon Valley Bank’s failure about two months ago. On Monday, it was announced that the bank was being taken over by the Federal Deposit Insurance Corporation and sold to JPMorgan in an effort to calm markets, but now the stocks of other major regional banks are facing fresh turmoil.
Investors are fleeing PacWest Bancorp, whose stock was down 50% on Thursday alone and about 70% over the past five days. While the stock was trading near $30 per share in February prior to SVB’s collapse, as of Thursday, a share was valued at about $3.30.
The move comes after PacWest, which has about $44 billion in assets, is said to be exploring “all options,” including a possible sale, CNBC reported on Wednesday. Piper Sandler and Stephens are reportedly advising PacWest. The bank said it has been in discussions with partners and investors.
SVB COLLAPSE: FED SAYS IT FAILED TO ‘TAKE FORCEFUL ENOUGH ACTION’
“The company will continue to evaluate all options to maximize shareholder value,” the California-based bank said in a statement. It added that the bank isn’t experiencing “out-of-the-ordinary deposit flows” after First Republic’s demise.
PacWest isn’t alone.
First Horizon Bank’s stock dropped 35% on Thursday and is down about 60% since the end of February. That comes after Toronto-Dominion Bank and the Tennessee-based First Horizon announced they are calling off a $13.4 billion merger that was announced in February because of uncertainty about regulatory approval of the deal.
Other regional banks were also faltering. Western Alliance stock fell more than 31% on Thursday after a report from the Financial Times that it is exploring a sale. Western Alliance denied the veracity of the report, calling it “absolutely false.”
“There is not a single element of the article that is true. Western Alliance is not exploring a sale, nor has it hired an adviser to explore strategic options. It is shameful and irresponsible that the Financial Times has allowed itself to be used as an instrument of short sellers and as a conduit for spreading false narratives about a financially sound and profitable bank,” a spokesperson told CNN.
The stocks of both Zions Bankcorp and Comerica Bank plunged by more than 11% on Thursday, while Valley National Bancorp tumbled by 4.5%.
The faltering regional bank stocks appeared to drag down the broader stock market as well. The Dow Jones Industrial Average fell more than 300 points around midday Thursday, and the S&P 500 was off by about 0.5%.
The uncertainty comes about seven weeks after the failure of SVB, which was then the biggest bank to collapse since 2008. Last week, the Federal Reserve released its much-anticipated report on the failures behind SVB’s collapse.
CLICK HERE TO READ MORE FROM THE WASHINGTON EXAMINER
The 118-page report is the culmination of an investigation spearheaded by Michael Barr, the Fed’s vice chairman for supervision. Barr said in the postmortem that the downfall of SVB represented failure across the board, at the bank, and at the Fed.
“Silicon Valley Bank (SVB) failed because of a textbook case of mismanagement by the bank. Its senior leadership failed to manage basic interest rate and liquidity risk,” Barr said. “Its board of directors failed to oversee senior leadership and hold them accountable. And Federal Reserve supervisors failed to take forceful enough action, as detailed in the report.”