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PACWEST Bancorp, First Horizon Corp and Western Alliance Bancorp led a renewed slide in the shares of US regional lenders, adding to concern for a sector that has been rattled in recent months by the collapse of multiple firms.
The latest upheaval started on Wednesday evening, after a report that PacWest is exploring strategic options.
The bank plunged 51 percent on Thursday, the most on record, to its lowest close ever after saying it is in talks with potential investors and partners.
Western Alliance tumbled 38 percent.
It pared a drop of as much as 62 percent after saying a report that it is exploring strategic options, including a potential sale, is “categorically false”.
“We believe the banks are having their GameStop-like moment, where social media is amplifying non-traditional approaches to assessing solvency,” Jaret Seiberg, TD Cowen analyst, wrote in a note. This creates a self-fulfilling prophecy that pressures stock prices, which then leads to more questions.”
The KBW Regional Banking Index slumped, extending this year’s rout to 31 percent. The volatility on Thursday, as Western Alliance denied the Financial Times report, “highlights the fragility of the market”, Bloomberg Intelligence analyst Herman Chan wrote.
“The narrative of the bank space has drifted from fundamentals to baseless speculation,” Hovde Group analyst Ben Gerlinger wrote in a note.
The slide in Western Alliance shares offers a “rare once-in-an-economic cycle entry point into a best of breed banking franchise”, he said.
Meanwhile, First Horizon tumbled 33 percent, the most since 2008, after saying it and Toronto-Dominion Bank mutually agreed to terminate their merger pact amid uncertainty around regulatory approvals.
Investors, including hedge fund billionaire Bill Ackman, are warning that stresses on the banking system are far from over.
Still, some analysts caution that the plunge has gone too far, reflecting more concern than is justified by fundamentals.
“The recent selloff in regional bank stocks is overdone as price action has been disconnected from fundamentals,” Truist Securities analyst Brandon King wrote in a note.
“While we continue to acknowledge challenges ahead from funding costs and normalising credit losses, first-quarter results and the stabilisation of deposits should have eased investor concerns of a more stressed situation.” — Bloomberg
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